Restricted stock is used by start-up companies for their founders and affiliates. It is often used in addition to appeal to new employees in addition to a salary, benefit package, and bonuses. It allows for employees to have ownership in the company through stocks.
The stock is given to those associated with the company and there are conditions that must be met before the stock is bought or sold by the holder. These conditions are created so that the holder can't prematurely sell the stocks and negatively affect the company. The conditions and circumstances under which the stock is sold must be in accordance with Securities and Exchange Commission regulations. In order for the stock to be sold, it must be vested, which usually occurs over the course of several years according to a pre-determined schedule.
Once the shares vest according to schedule, holders of restricted stock must pay taxes on them. Holders pay tax according to the value of the share on the vesting date and if the holder should choose to sell the stock, they must pay long or short-term capital gains tax.
Restricted Stock Definition
June 16, 2019