Restricted Stock Basics

What is Restricted Stock? 

Restricted Stock is generally a grant of stock to service provider, usually founders, employees, consultants or advisors, that is subject to certain contractual restrictions until it vests. These shares are usually subject to forfeiture or repurchase option by the employer and not transferable within a specified period of time. The forfeiture or repurchase of the restricted stock by the employer could occur on different types of events, typically, the termination of the employment or service relationship, or the failure of accomplishing certain performance goals before the the stock vests. The lapse of the restriction period is called vesting, after the restriction period lapses, the stock will not be subject to the risk of forfeiture any more, meaning the stock is fully vested.

什么是限制性股票?

限制性股票通常指授予给服务提供者如公司关键雇员、顾问等受某些合同限制的公司股票, 这些限制通常会随合同约定的时间消失。合同一般约定限制性股票在特定时间内无法转让且会因某些情况发生被公司没收或强制回购。触发公司可以强制收回股票的情况根据合同约定可以有多种,常见的如员工在股票兑现前终止与公司的劳动或服务关系,或未完成约定既定指标等。股票受限制期限的消失称为兑现,受限制期终止后这类股票将不受公司强制收回的风险,意味着股票完全兑现。

Why Company Issues Restricted Stock? 

Restricted Stock is most common among founders in a startup, the vesting schedule would to some extend ensure that the founders will provide continuous services to the company. Often times, institutional investors will demand the founders to enter into a restricted stock agreement with the company as one of the conditions of their investment. In some cases, restricted stock could also be awarded to employees, consultants or board advisors as a type of equity compensation in consideration of their services rendered to the company. It should be noted that when granting equity compensation, a private startup company should evaluate the federal securities law exemptions since the issuance of equity to an employee or consultant may be considered an offer and sale of securities. Rule 701 of the 1933 Securities Act is the most widely used exemption for private startup company to rely on when issuing equity compensation to employees and consultants. The basic requirement of Rule 701 exemption is that the company shall issue the stock under a “written compensation plan”. Therefore, it’s advisable to have the shareholders and board of directors adopt and approve a comprehensive stock incentive plan before granting any restricted stock or any other equity compensation to the employees, consultants or advisors (other types of equity compensation may include incentive stock options, non-statutory stock options, restricted stock units, stock appreciation rights etc.)

公司为什么发行限制性股票

限制性股票通常在公司创始人之间会比较常见,通过对股权进行限制性的约定并制定兑现期限会使得公司创始人在兑现期限内持续为公司工作。通常,如果有机构投资人看中公司,也会要求公司创始人与公司签订限制性股票协议,这通常是他们投资的条件之一。在某些情况下,公司也会将限制性股票授予给公司的雇员或顾问等,以换取他们对公司的服务。在这种情况下,公司应注意评估是否符合联邦证券法的豁免规定,因为授予雇员限制性股票也很可能会被视为一种发行与出售股票而受到证券法的监管。初创公司最常依据的联邦证券法豁免是1933证券法下第701规则,该规则的基本要求是公司必须是依据一份“书面的激励计划”来授予相关的股权。因此,建议公司在授予限制性股票或其他股权激励前,应通过股东与董事决议,制定通过一份详尽的股权激励计划。

Federal Tax Consequences to Grantee

Upon grant of restricted stock, the grantee may need to decide whether to file 83(b) election with IRS for receiving the restricted stock. The rationale for filing the 83(b) election is to earlier recognize the ordinary income of the restricted stock at the grant, rather than upon the restricted stock is vested, to avoid the unfavarable tax results if the stock value increases significantly when vested. It’s always advisable to file the 83(b) election if you anticipate the stock value will increase significantly when vested, in addition, if you have paid fair market value for the stock at grant, there will be no recognized income at the grant. On the other hand, if at the time of grant the purchase price is nominal or substantially lower than the fair market value of the stock, you may put the money of paying tax upfront at risk by making the election, since the value of the stocks might decrease after the stocks are vested, and worst scenario you might lose all the stocks if you are fired by the company before the stocks become fully vested. We have another article explaining why and when you should file 83(b) election here.

被授予者的税务处理

被授予限制性股票时,被授予者应考虑是否向联邦税务总局做83(b) Election. 这样做的好处是可以提前实现税务所得,而不是等到股票完全兑现时对该限制性股票报税,以避免股票增值带来的不利税务后果。如果你预期手里的股票很可能会升值,那么建议拿到限制性股票后最好做83(b) Election, 而且,如果你在被授予该限制性股票时支付了公平市场价,那么该限制性股票也就不会产生税务所得。另一方面,如果在授予限制性股票时,你支付的价格远低于股票的市场公允价,那么你提前付税的钱就存在风险了。关于为什么及何时应做83(b) Election请参见我们另一篇文章,有比较详细的阐述。


© 2018 MT Law LLC. All Rights Reserved. Do not post without permission from the author.

Article edited and drafted by Vincent Cheng (hmcheng@mtlawllc.com).

Disclaimer

This article is for informational purposes only. It does not constitute advertising, legal advice or legal opinion. It is not promised or guaranteed to be correct or complete and may or may not reflect the most current legal developments. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, an attorney–client relationship. MT Law LLC and the authors expressly disclaim all liability in respect to actions taken or not taken based on the contents of this article. Readers with legal questions should consult an attorney. The choice of a lawyer is an important decision and should not be based solely upon informational articles.

ABOUT THE FIRM

MT Law is a full-service law firm representing clients in a wide range of practice areas including Business and Corporate Law, Immigration Law, Real Estate Law, Tax Law, Estate Planning and Intellectual Property. Headquartered in historic Lexington, Massachusetts, MT Law has additional offices spread across the United States in Boston, New York City, San Francisco, and Los Angeles, as well as offices in Beijing and Shanghai. For more information, please visit www.mtlawllc.com.

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