By Eric Loftus, CFP®
Most advice about equity compensation quietly assumes one thing: that you can sell your shares whenever you decide to. For a large number of executives, that assumption is simply wrong, and building a plan on it leads to expensive mistakes.
Whether your company is public or private changes almost everything about how your equity should be handled. It changes when you owe tax, when you can actually turn shares into money, and what a smart move even looks like. So before any strategy, the first question is not what should I do. It is what do I hold, and can I sell it.
Liquid Wealth Versus Paper Wealth
The cleanest way to understand the divide is liquidity, meaning how easily something converts to cash.
Public company shares are typically liquid. When they are yours and you are clear of any restrictions, you can sell them at a known price on any trading day. Private company shares are usually the opposite. They may be worth a great deal on paper, but there is often no ready market to sell them in, and turning them into spendable money may depend on an event that has not happened yet, such as an acquisition or a public offering.
That difference is not a technicality. It determines whether a tax bill arrives with cash to pay it, or arrives while your wealth is still locked inside shares you cannot sell.
The Same Labels Mean Different Things
Equity comes in a few common forms, and the form matters as much as the amount.
At a public company, restricted stock units, or RSUs, generally become taxable as ordinary income when they vest, whether or not you sell. Options, whether incentive stock options or nonqualified options, are taxed under their own rules when you exercise. Because the shares are liquid, at least you have the practical ability to sell some to cover the tax.
At a private company, the same labels carry a hidden trap. Options work similarly, but exercising them can require real out-of-pocket cash and can trigger tax on shares you still cannot sell. Private RSUs are where people get caught most often, which is why many private companies now use what are called double-trigger RSUs.
Why Double-Trigger RSUs Matter
A double-trigger RSU has two conditions that both have to be met before you are taxed.
The first trigger is the ordinary one, staying at the company long enough to vest by service. The second trigger is a liquidity event, typically the company going public or being acquired. Only when both have happened does the income become taxable.
The reason this structure exists is protective. With a single-trigger RSU at a private company, you could owe ordinary income tax the moment the shares vest, on paper wealth you have no way to sell, leaving you writing a check for stock you cannot touch. The double trigger prevents that by waiting until there is actually a market. If you hold private RSUs, knowing whether they are single or double trigger is one of the most important facts about your own compensation, and many people do not know which they have.
Public RSUs: Vesting Is the Start, Not the End
For public company employees, the most common and quietly costly decision comes after vesting.
RSUs commonly vest over about four years, with a portion vesting after the first year and the rest in regular installments after that, though schedules vary. When they vest, their value is generally treated as W-2 compensation, and companies will often sell or withhold some of the shares to cover the required tax withholding. But paying that withholding is not the end of the planning.
Holding onto the remaining shares afterward is not loyalty and it is not a default. It is an active investment decision, the same as if you had taken that cash and chosen to buy company stock with it. Framed that way, most people would not put that much of their savings into a single stock on purpose. Yet by holding vested shares year after year, that is exactly what happens.
This is the concentration problem. Your paycheck already depends on your employer. When a large share of your savings rides on the same company, a single setback can hit your income and your net worth at the same time. Diversifying is not a vote against the company. It is a recognition that the money is now yours to protect.
The Calendar Problem: Trading Windows and Blackouts
Here is where generic year-end advice falls apart for public company insiders.
Many employees at public companies cannot simply sell whenever they want. They may only be able to sell during defined open trading windows, often the few weeks following an earnings announcement, and are blocked during blackout periods the rest of the time. For a lot of companies, December sits inside a blackout, so the standard advice to make your move before year-end is not just unhelpful, it can be impossible.
The fix is to plan around your windows, not the calendar. Someone might effectively have opportunities to sell in January, April, July, and October, for example. The real work happens before a window opens, and it comes down to a handful of questions: When does your next window open? What will vest before then? How concentrated will your position become? How much should you sell when the window opens, and what are the tax consequences? What cash-flow needs or goals could that sale fund? Answer those in advance, and when the window opens you act on a decision you already made calmly rather than scrambling in a narrow window of days.
Getting It Right for Your Situation
Public or private, liquid or locked, single trigger or double, these distinctions inform what belongs in your plan. Getting them right is difficult to do in isolation, because the tax question and the liquidity question and the concentration question all touch each other.
At Wealth Dimensions, we help executives sort out exactly what they hold, then build the plan around their real constraints, coordinating directly with your CPA so the tax picture and the equity picture are one conversation. If you hold equity in a public or a pre-IPO company and are not certain how the pieces fit, call (513) 554-6000 or visit wealthdimensions.com.
Frequently Asked Questions
How is public company equity different from private company equity?
The core difference is liquidity. Public shares can generally be sold at a known price on any trading day, so tax bills arrive alongside the ability to raise cash. Private shares are often illiquid, meaning you may owe tax or spend cash to exercise while still unable to sell. At Wealth Dimensions, we help executives plan differently depending on which situation they are in.
What is a double-trigger RSU?
It is a restricted stock unit that only becomes taxable after two conditions are met: vesting by service, and a liquidity event such as an IPO or acquisition. The structure protects employees from owing ordinary income tax on private shares they cannot yet sell. If you hold private RSUs, knowing whether they are single or double trigger is essential, and Wealth Dimensions can help you confirm and plan around it.
Why does year-end advice not work for public company employees?
Because many public company employees can only sell during open trading windows and are restricted during blackout periods, and December often falls in a blackout. Planning around your specific trading windows is far more useful than a calendar deadline. At Wealth Dimensions, we help clients prepare their decisions before a window opens so they can act deliberately when it does.
About Eric
Eric Loftus, CFP®, is a partner and financial advisor at Wealth Dimensions, an independent wealth management firm based in Cincinnati, Ohio, where he sits on the portfolio management team, oversees marketing, and delivers tailored financial planning. He joined the firm in 2009 after earning his bachelor’s degree in business administration from The Ohio State University’s Fisher College of Business and holds the CERTIFIED FINANCIAL PLANNER® designation.
For informational purposes only. Not a recommendation of any particular security or strategy.