What Happens to Your Stock Options (RSUs & Equity) When a Company Gets Acquired?

Implications of Mergers & Acquisitions

When your company is acquired, it can feel like you’ve reached the finish line—or the start of a very confusing tax season. If you have stock options, RSUs, or some form of equity on the table, you’ve already earned a seat at the payout discussion—but the terms of that payout are rarely straightforward.

Your equity might turn into cash, convert into new shares, or vanish completely. And most employees don’t realize how much hinges on two things:

1. Who’s calling the shots (hint: it’s not you—it’s the acquirer’s lawyers and your stock plan documents).
2. How fast you act (miss a deadline, and your equity could evaporate).

This guide breaks down what really happens when your company is acquired—how your stock may be treated, what taxes might hit, and how to respond smartly.

Who Decides What Happens to Your Equity?

Unfortunately, you don’t get a vote. Your equity’s fate is shaped by three key players:

1. The acquiring company – They determine whether to pay cash, offer new equity, or cancel existing grants.
2. Your company’s board and exec team – They negotiate on behalf of shareholders and employees.
3. The deal documents – These outline the final terms: what vests, what converts, and what gets canceled.

Your move? Be ready to act based on what they decide.

Stock Options in an Acquisition: Possible Outcomes

Your stock options face five possible fates—each with its own financial ripple effect. Here’s what you could be up against:

Cash Settlement

If your options are in the money, you can get paid the spread.

Example: Strike = $20. Acquisition = $50. You receive $30 per share.

If your employee stock options have value you may receive a direct cash payout. In this scenario, you’re paid the difference between your exercise price and the acquisition price for each option you hold.

Conversion to New Company Options

Your options become options in the acquiring company—often at a conversion ratio negotiated in the acquisition/merger terms.

Example: 1 old share becomes 0.75 shares in NewCo.

Cancellation

If your strike price is above the deal price, they’re canceled.

Example: $50 strike, $30 acquisition = canceled. Maybe a $0.10 payout if you’re lucky.

If your employee stock options are underwater—meaning the exercise price of your options is higher than the price the company will be acquired for—they’re typically canceled. In this situation, your options have no inherent value, as exercising them would mean buying shares at a price higher than what they’re worth in the acquisition.

Shortened Expiration

The acquiring company may reduce the amount of time you have to exercise your employee stock options, especially if you leave the company. This is known as shortening the exercise window.

Example: Instead of the typical exercise window (which could be months or years after leaving the company), the acquirer might stipulate that you have only 90 days post-termination to exercise your vested options; otherwise, they expire and become worthless. 

Double-Trigger Acceleration

You vest only if (1) the company is acquired and (2) you’re let go. This is common in private-to-public exits (more on this below).

Talk with a Stock Option Professional

Vested vs. Unvested Stock Options

Your equity’s fate hinges on one critical factor: vesting status. 

Vested Options

If your options are vested, congratulations—you’ve earned the right to cash in. In most acquisitions, vested options are either:

• Converted to cash (based on the spread between your strike price and the acquisition price), or
• Swapped for shares in the acquiring company.

The catch? Even vested options aren’t bulletproof. Acquisition deals often include clauses that:

• Shorten exercise windows (e.g., “You have 90 days post-close to act—or lose everything”).
• Auto-accelerate vesting for remaining shares (rare).

Takeaway: Vested options = liquidity, but speed matters. Review your stock plan for blackout periods or hidden deadlines.

Unvested Options

This is where things get messy. The acquirer holds all the cards, and your outcome depends on three paths:

1. Accelerated: You get them now.

Single-trigger acceleration is the gold standard: your unvested options vest immediately at closing, no strings attached. This perk is typically reserved for executives and key employees, as it rewards loyalty without requiring further commitment.

For everyone else, double-trigger acceleration is more common: your options only vest if you’re terminated post-acquisition, like a severance package disguised as equity. The catch? If you survive the merger, your unvested options might remain frozen under the acquirer’s new vesting schedule.

2. Canceled – Gone without a trace.

This is likely if your options are underwater (strike price > acquisition price) or the acquirer wants to trim costs.

3. Substituted – A wild card.

Unvested options may convert to the acquirer’s stock, but the terms are rarely employee-friendly. New grants often reset vesting schedules or dilute your stake. If the acquirer’s stock is volatile (e.g., a struggling public company), your new options could crater faster than a meme coin.

What About RSUs?

Unlike options, RSUs represent a promise to grant you shares of stock once the vesting conditions are met. In an acquisition, RSUs are generally treated in one of three ways:

• Accelerated: Vesting may be triggered at close (single-trigger) or upon termination (double-trigger). This is the most favorable outcome, as you receive the shares outright.
• Assumed or Substituted: Your RSUs are replaced with RSUs in the acquiring company, typically on a pro-rata basis.
• Canceled: Rare, but possible if the acquirer declines to honor unvested grants. This is the least desirable outcome.

What About Stock Appreciation Rights (SARs)?

SARs let you benefit from the increase in your company’s stock price without buying shares. In an acquisition, SARs are usually settled for cash or shares based on the deal price, so you receive the value of the appreciation directly–no exercise required, no risk of underwater options, and no dilution of company ownership.

Action Steps

Dig into your stock plan now.

Before the Deal Closes:

• Review your equity grant documents. Look for acceleration clauses, expiration terms, and double-trigger provisions.  Read all “change of control” clauses—and assume no one will explain them to you. 
• Model your potential tax liability—especially if ISOs are involved (AMT risk!) or if you’re sitting on NSOs (income tax due at exercise).
• Start conversations early. HR may not have answers—check with legal or finance.

After the Deal Closes:

• Act fast. Many post-termination exercise windows shrink to 90 days or less.
• If you’re negotiating severance, push for acceleration or extended exercise periods.
• Talk to a tax advisor. Especially if you’re dealing with AMT, golden parachutes, or cross-border complexities (explained below).

Talk with a Summitry Advisor

Tax Implications of Equity & Stock Options in an Acquisition

Incentive Stock Options (ISOs)

ISOs lure you with no ordinary income tax at exercise, but the spread between your strike price and the stock’s fair market value (FMV) triggers the Alternative Minimum Tax (AMT).

For example, if you exercise 1,000 ISOs with a $10 strike price and the FMV at the time is $50, the $40,000 difference is added to your AMT calculation for the year, even though you haven’t sold the shares yet.

When it comes time to sell, the timing determines how the gain is taxed. If you hold the shares for at least one year after exercising and two years after the original grant date, your profit is taxed as long-term capital gains, which usually means a lower tax rate. But if you sell earlier than that, the spread between the FMV at exercise and the strike price is taxed as ordinary income, and any additional appreciation after exercise is taxed as short-term capital gains.

For example, if you exercise ISOs and then sell six months later, that same $40,000 spread is taxed as regular income, and any further gain beyond that is taxed at the higher short-term capital gains rate.

Non-Qualified Stock Options (NSOs)

With NSOs, the spread is taxed as ordinary income the moment you exercise.

Example: Exercise 1,000 NSOs at a $10 strike price with a $50 FMV, and you’ll owe taxes on $40,000 as if it were salary.

The pro move? Exercise early to start the clock on long-term capital gains, which kick in after holding shares for a year.

After you exercise, any additional gains are taxed as capital gains (long-term or short-term depending on when you sell).

A Quick Comparison: ISOs vs NSOs

RSUs

The FMV of the shares on the vesting date is treated as ordinary income, just like your salary. Expect to see federal and state income taxes, plus Social Security and Medicare taxes, all withheld from your paycheck.

If your RSUs accelerate due to the acquisition, that accelerated vesting triggers this income tax hit immediately. There’s no holding period requirement to get long-term capital gains treatment. Instead, your holding period starts the day after vesting. Any gain (or loss) from that point until you sell is treated as either short-term or long-term capital gain.

Special Considerations

There are a few edge-case scenarios that don’t affect everyone but can have a big impact on those they do.

Golden Parachutes (IRC 280G)

Golden parachute rules (IRC 280G) slap executives with a 20% excise tax on payouts exceeding three times their base salary—a brutal penalty for high earners. This can impact how severance or accelerated vesting is negotiated.

International Employees 

If you’re employed internationally or your company is being acquired by a foreign firm, complex rules (like PFIC or CFC regulations) may apply. These rules are technical and vary by country, so working with a cross-border tax expert becomes essential.

83(b) Elections

If you’re granted restricted stock that vests over time, the IRS typically taxes you as each portion vests, meaning you’ll owe ordinary income tax on the value at each vesting date, which can add up quickly if your company’s value grows.

The 83(b) election offers a powerful alternative: it lets you choose to pay taxes on the total fair market value of your restricted stock at the time it’s granted, rather than waiting until it vests.

If you expect your company’s stock to appreciate, paying tax upfront, when the value is likely much lower, can mean significant tax savings. Any future increase in value is then taxed at the more favorable long-term capital gains rate when you sell, rather than as ordinary income when it vests. Plus, your holding period for capital gains starts at the grant date, potentially qualifying you for long-term rates sooner.

Risks:

• If you leave before vesting, you can’t get your upfront tax back on unvested shares.
• If the company’s value drops, you may have paid tax on value that never materializes.
• The election is irrevocable, so consult a tax advisor before acting.

Tax Forms to Know

When tax season hits after an acquisition, three forms matter more than most.

Form 3921 tracks your ISO exercises and goes straight to the IRS—misreport it, and you could be inviting an audit. Form 6251 is your AMT calculator, required if you exercised ISOs and need to figure out whether that spread triggered the Alternative Minimum Tax. And if you exercised NSOs, that income will show up on your W-2 as ordinary income, with payroll taxes already withheld—usually enough to put a dent in your net pay.

Request a Tax Planning Consultation

Negotiation Strategies: Leveling the Playing Field

While you might feel powerless, you have some leverage during an acquisition, especially around severance and unvested equity. Here are tactics to consider:

Know Your Worth (and Prove It):

Quantify your contributions to the company. Highlight specific achievements, projects led, and revenue generated. This gives you a stronger position when asking for favorable treatment.

Time it Right:

The best time to negotiate is before the deal closes. Once the ink is dry, the acquirer has less incentive to be flexible. Start having conversations with your manager and HR as soon as you hear rumblings of a potential acquisition.

Focus on What Matters Most:

Focus your energy on the items that will have the biggest financial impact. Is it accelerated vesting? An extended exercise window? A cash bonus? 

Ask for Single-Trigger Acceleration:

This is the holy grail. Frame it as a way to ensure a smooth transition and knowledge transfer. If the acquirer values your expertise, they might be willing to grant single-trigger acceleration to keep you engaged during the integration period.

Negotiate an Extended Exercise Window

If you can’t get acceleration, try to negotiate a longer period to exercise your options after you leave the company. The standard 90 days is often too short to make an informed decision, especially if you’re facing a large tax bill.

Consider a “Gross-Up” for Taxes:

If you’re receiving a cash payout, ask for the company to cover (or “gross-up”) the taxes. This is more common for executives but can be worth exploring.

Get it in Writing:

Verbal agreements mean nothing. Make sure any negotiated terms are documented in a written agreement signed by both you and the company.

Seek Legal Counsel:

If the stakes are high or the situation is feeling too complex, consult an attorney specializing in executive compensation and employment law. They can review your agreements, advise you on your rights, and negotiate on your behalf.

Final Thoughts: Know the Game & Play it Well

Crack open those stock plan docs (yes, they’re boring, but they’re also your lifeline). Run the AMT math now—unless you enjoy surprise tax bills that’ll make your head spin.

The difference between a payday and a tax tsunami is what you do in the next 90 days. Clock’s ticking.