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Can a consultant receive restricted stock?

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A consultant can receive restricted stock on the same terms as an employee: shares bought at fair market value, vesting over the engagement, a repurchase right on the unvested portion, and an 83(b) election filed within thirty days. What changes is the reporting. Any income the consultant recognizes on the award is nonemployee compensation rather than wages, so it goes on a Form 1099-NEC instead of a W-2, carries no withholding, and is subject to self-employment tax.

When it makes sense

Early, while the stock is worth little. A consultant who pays fair market value on the day of the award and files the election has no income to report then, and everything after is capital gain when the shares are eventually sold. Once the common stock has a meaningful 409A value the purchase price becomes real money, and a nonstatutory option is the usual substitute.

The 83(b) election

The election puts the award into income now, on the difference between fair market value and what was paid, instead of at each vesting date. Thirty days from the transfer, no extensions, and the consultant files it, not the company, though the company should ask for a copy. A consultant who skips it and vests over two years owes ordinary income on the value of every tranche as it vests, at whatever the stock is worth then.

When the consultant has a company of their own

Many consultants bill through an LLC or a corporation and would like the shares to go there. Rule 701 covers consultants only when they are natural persons, so shares issued to the consultant's entity fall outside it and need another exemption. The award agreement, the vesting and the repurchase right also assume a person who can stop providing services; an entity can swap the person out. The usual practice is to issue to the individual and leave the consultant to sort out their own arrangements with their company.

Board approval is the same as for an employee: a consent under the plan fixing the recipient, the shares, the price and the schedule, and a signed restricted stock award agreement.

Written by the lawyers who built Arabella. This is legal information, not legal advice for your situation, and reading it does not make us your lawyers. For a real dispute or a high-stakes decision, talk to a licensed attorney. More questions.