A Restricted Stock Purchase Agreement is a legal document that is used by companies to grant restricted stock to employees or investors. Restricted stock is a form of equity compensation that is subject to certain restrictions, such as vesting, transfer, and forfeiture. The agreement outlines the terms of the restricted stock sale, including the company’s rights and obligations, the restrictions on the stock, and the terms of payment. There are two main types of Restricted Stock Purchase Agreement: an employee-based agreement and an investor-based agreement. Employee-based agreements are used to grant restricted stock to employees as part of an employee stock purchase plan, while investor-based agreements are used for private investments in the company’s stock. Both agreements typically include a vesting schedule, restrictions on transfer of the stock, and forfeiture provisions.
Restricted Stock Purchase Agreement
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FAQ
Restricted stock (also called letter stock or section 1244 stock) is usually awarded to company directors and other high-level executives, whereas restricted stock units (RSUs) are typically awarded to lower-level employees. Restricted stock tends to have more conditions and restrictions than an RSU.
For example, a new tech startup might offer restricted stock to its key executives to provide additional compensation without the need for immediate cash. In addition, the stock may have a vesting timeline of five years before the executive has full ownership of the shares.
Common Sections in Restricted Stock Purchase Agreements Purchase and Sale of the Shares. Closing. Repurchase Option. Release of Shares from Repurchase Option; Vesting. Limitation on Payments. Restrictions on Transfer. Company's Right of First Refusal. Escrow.
Restricted stock units give employees interest in their employer's equity but have no tangible value until they are vested. The RSUs are assigned a fair market value (FMV) when they vest. Restricted stock units are considered income once vested, and a portion of the shares is withheld to pay income taxes.
A Restricted Stock Purchase Agreement (RSPA) is an agreement issuing restricted stock. RSPAs are typically granted to founders to prevent the founder from leaving the company prematurely and taking a lot of the ownership with her. The RSPA establishes when the shares will fully vest and belong to the founder.
A Simple Strategy for RSUs (Almost) Every Recipient Should Follow. So what's the most tax efficient way to manage your restricted stock? Sell your shares immediately upon vesting. In nearly all cases, this is most advantageous approach, especially if you expect to receive new awards each year going forward.