How do I give restricted stock to an employee?
EquityEmployeesTax
Restricted stock is the right instrument when the common stock is worth very little, which means the earliest days of the company. The employee buys the shares outright at fair market value, the company keeps the right to repurchase any unvested shares if they leave, and the employee files an 83(b) election within thirty days so tax is measured on today's low value rather than on what the shares are worth when they vest. Once the stock has real value, paying for it up front stops being practical and options take over.
The purchase price and how it is paid
The shares are sold, not given, at fair market value on the date of the award. In a new company that is often a fraction of a cent per share, paid by check, by assigning intellectual property to the company, or occasionally by promissory note if the board is comfortable with that. Whatever the method, record it. A share issued for nothing is a share the company may not have validly issued.
Vesting and repurchase
The shares vest on the schedule in the award agreement. Until they do, the company holds an option to buy back unvested shares, usually at the lower of the original price and fair market value, if the employee leaves. That repurchase right is what makes the stock restricted, and it lapses share by share as vesting runs.
The 83(b) election
Without an election, the employee is taxed on each vesting date on the difference between fair market value then and what they paid. With one, they are taxed once, at the award, on the difference at that moment, which for a founder-priced share is usually nothing. The election is a short letter to the IRS. The thirty-day deadline runs from the transfer, and there is no extension.
The approval
The board approves every award under the equity incentive plan, fixing the recipient, the shares, the price and the vesting. The employee signs a restricted stock award agreement, and any certificate carries the transfer restriction on its face.
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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.