What is restricted about restricted stock?

What Is Restricted Stock? Restricted stock refers to unregistered shares of ownership in a corporation that are issued to corporate affiliates, such as executives and directors. Restricted stock is non-transferable and must be traded in compliance with special Securities and Exchange Commission (SEC) regulations.

How long is restricted stock restricted?

Most graded-vesting grants have restrictions that lapse over a period of three to five years. In addition to providing for regular vesting, a graded vesting schedule may, alternatively, have varying intervals between vesting dates: Example: You are granted 20,000 RSUs.

Can you withdraw restricted stock units?

There is no value to the employee when issued. The RSUs will vest at some point in the future based on time passed or perhaps the achievement of a goal. They are then distributed as shares of stock but can be distributed as cash—although this is less common.

How do you value restricted stock?

RSUs are assigned a fair market value at the time they become vested. In other words, if the company’s stock is valued at $20 per share at the time the RSU becomes vested, then the per-unit value of the RSUs is $20.

How do you Unrestrict restricted stock?

If you receive stock from a company “affiliate” — an executive officer, director or large investor — the shares are restricted “control securities.” Under SEC Rule 144, you can lift stock restrictions by holding the shares for a set amount of time.

Can restricted shares be sold?

Restricted stock cannot be sold through public transactions due to securities laws and regulations. This class of stock was created as further regulation stemming from the Securities Act of 1933, which was intended to prevent market manipulation through selling large blocks of stock.

Are restricted stock units income?

“Restricted stock units (RSUs) are a form of equity-based compensation consisting of contractual promises by an employer to deliver shares of stock at a future date once the RSUs have vested. Once vested and delivered, RSUs are taxed as ordinary income to the employee.” Ribnicky v.

What is the difference between a restricted stock award and a restricted stock unit?

An RSU is common stock that will be delivered at a future date, contingent on vesting and performance conditions. RSU shares are not received until the restrictions lapse. Another key difference from an RSA is that the RSU holder does not pay anything to own the shares (outside of applicable taxes).

What happens when you sell restricted stock?

When you sell the shares, you will pay capital gains tax on any appreciation of the market value from the vesting date when you received the RSU shares. If you sell the shares immediately, before they increase or decrease in value, there will be no capital gains tax due.