restricted stock: Complete U.S. Guide

Restricted stock

This article explains what restricted stock means in U.S. equity compensation, why companies use it, how restricted stock grants work, and what employees and employers should consider when receiving or administering these awards. You will learn practical vesting, tax, accounting, legal, and operational details, worked numerical examples, and up-to-date context including relevant market developments such as tokenized share initiatives and public insider filings.

Note: This article focuses on restricted stock and restricted stock units (RSUs) within U.S. equity compensation. It is educational and not investment or tax advice. Consult a qualified tax or legal professional for personal guidance.

Overview and purpose

Restricted stock refers to company equity granted to employees, executives, or directors that is subject to transfer and forfeiture restrictions. These restrictions commonly take the form of vesting conditions tied to time of service, performance goals, or corporate events. Closely related are restricted stock units (RSUs), which are contractual promises to deliver shares (or sometimes cash) when vesting conditions are met.

Companies grant restricted stock and RSUs to: retain key employees, align employee incentives with shareholder interests, and conserve cash by compensating with equity rather than salary. Typical beneficiaries include new hires, senior leaders, and directors, though broad employee plans also use restricted stock or RSUs as part of compensation packages.

Throughout this article the exact phrase restricted stock appears frequently to help readers recognize terminology and practical implications.

Types of restricted equity awards

Restricted Stock Awards (RSAs)

Restricted stock awards (RSAs) are actual shares issued at the grant date but subject to forfeiture if vesting conditions are not met. From the grant date, RSA holders typically have shareholder rights such as voting and the right to receive dividends, though plan documents may limit certain rights until vesting. If an RSA is forfeited, the company usually cancels the shares.

Key points for RSAs:

• Shares are issued at grant (subject to restrictions).
• Voting and dividend rights typically attach at grant, unless contractually limited.
• A taxpayer can file a Section 83(b) election soon after grant to accelerate tax recognition to the grant date (see Taxation section).

Restricted Stock Units (RSUs)

Restricted stock units (RSUs) are promises by the employer to deliver shares (or sometimes cash) when vesting occurs. RSUs are not shares until settlement, so recipients generally do not have shareholder rights (voting, dividends) before settlement. Some RSU plans issue dividend equivalents.

Key points for RSUs:

• No shareholder status pre‑settlement.
• Settlement typically occurs at vesting as shares or cash.
• No Section 83(b) election is available for standard RSUs.

Variants and common vesting triggers

Restricted stock and RSUs come with a variety of vesting conditions and special provisions:

• Time‑based vesting: e.g., four‑year schedule with a one‑year cliff and monthly or quarterly vesting thereafter.
• Performance‑based vesting: vesting tied to company or individual performance metrics (revenue, EBITDA, TSR — total shareholder return).
• Single‑trigger acceleration: awards vest on one event (e.g., change of control).
• Double‑trigger acceleration: awards vest on a change of control plus termination without cause or resignation for good reason.
• Hybrid structures: combine time and performance requirements.
• Liquidity‑triggered settlement for private companies: settlement occurs after an IPO, sale, or other defined liquidity event.

Variations matter for tax timing, accounting, and employee decision making.

Grant mechanics and lifecycle

A restricted stock award lifecycle typically follows these stages: grant date, vesting schedule, settlement or issuance, and potential forfeiture or disposition.

• Grant date: the date of the award and the start of the vesting period.
• Vesting schedules:
  • Cliff vesting: no vesting until a defined period (e.g., one year), then a tranche vests.
  • Graded vesting: portions vest periodically (e.g., 25% after year one, then 1/48 monthly).
• Settlement: RSAs may already be shares at grant; RSUs settle to shares or cash at vest date. Settlement can be delayed in private companies until a liquidity event.
• Forfeiture on termination: unvested restricted stock typically forfeits upon voluntary resignation or termination for cause. Some plans allow vesting on retirement or death, or provide pro‑rata vesting on termination without cause.

Handling at death, disability, or retirement is governed by plan terms and could include accelerated vesting, immediate settlement, or beneficiary transfers.

Taxation (United States)

Tax treatment differs between RSAs and RSUs and depends on elections such as a Section 83(b) election.

General rules

• RSAs: If no Section 83(b) election is made, the recipient recognizes ordinary income equal to the fair market value of the shares that vest, less any amount paid for the shares, at each vesting date. If an 83(b) election is timely filed (within 30 days of grant), the recipient recognizes ordinary income on the fair market value of the shares at the grant date (less purchase price), and later appreciation is taxed as capital gain on sale (subject to holding period rules).

• RSUs: Generally taxable as ordinary income when the RSUs settle into shares or cash, based on the fair market value of shares at settlement. No 83(b) election is available for standard RSUs because there is no transfer of a property interest at grant.

After initial ordinary income recognition, subsequent gain or loss on sale of the shares is capital gain or loss measured from the tax basis established at vest/settlement.

Payroll withholding and methods

At vest or settlement, employers commonly satisfy payroll withholding in several ways:

• Share‑settlement withholding: delivering net shares after withholding.
• Sell‑to‑cover: employer or broker sells enough shares to cover taxes and delivers remaining shares to the employee.
• Cash withholding: employee pays cash to cover withholding.

These methods can create tax‑timing or liquidity mismatches for employees who have an income tax obligation at vest but do not have liquid cash.

Section 83(b) election

An 83(b) election allows an RSA recipient to elect to include the value of restricted stock in ordinary income at grant rather than at vest. Benefits and risks:

• Potential benefits: any future appreciation may be capital gains rather than ordinary income, and holding period for long‑term capital gains can start earlier.
• Risks: if shares are forfeited before vest, the taxpayer cannot recoup taxes paid upon making the 83(b) election; paying tax early requires cash now; valuation at grant may be difficult for private companies.

Practical notes:

• The 83(b) election must be filed with the IRS within 30 days of grant — no extensions.
• Employees should consult tax advisors to evaluate the election’s suitability.

Example: taxation and sale calculations

Example A — RSA without 83(b):

• Grant: 1,000 restricted stock shares; purchase price $0; FMV at grant $5 per share (but no 83(b) filed).
• Vesting at year 2: 500 shares vest when FMV = $15.
  • Ordinary income at vest: 500 × $15 = $7,500 (plus payroll taxes).
• Sale after two more years at $25 per share:
  • Basis for sold shares = $15 per share. Capital gain = $25 − $15 = $10 per share.

Example B — RSA with 83(b) election:

• Grant: 1,000 restricted stock shares; FMV at grant $5; 83(b) filed.
• Immediately recognize $5,000 ordinary income at grant.
• Later at sale at $25: basis = $5. Capital gain per share = $20; qualifies for long‑term capital gain if holding period satisfied.

Example: RSU taxation on settlement:

• Grant: 1,000 RSUs; vest in year 3; FMV at settlement = $20.
• Ordinary income at settlement = 1,000 × $20 = $20,000.
• If company withholds 25% in sell‑to‑cover, 250 shares sold to pay taxes; employee receives 750 shares.

These numerical examples illustrate ordinary income at vest/settlement and later capital gain treatment.

Accounting and financial reporting

Under U.S. GAAP, share-based compensation expense is recognized under ASC Topic 718. Employers measure the grant‑date fair value of restricted stock or RSUs and recognize expense over the requisite service period (typically the vesting period), subject to probable achievement of non‑market performance conditions.

Key accounting points:

• For RSAs granted as outright shares with no service restriction (rare), companies may not record expense; most RSAs include vesting conditions requiring expense recognition.
• RSUs are liability or equity awards depending on settlement terms; equity‑settled RSUs result in equity classification, while cash‑settled awards are liabilities measured at fair value each reporting period.
• Performance‑based awards with market conditions (e.g., TSR) are accounted for differently than conditions based solely on service or non‑market performance.

Compared with stock options, restricted stock/RSUs often lead to less volatility in recognized compensation expense because RSAs and RSUs have more predictable value (options are more sensitive to volatility and time value).

Legal and regulatory considerations

Restricted stock and RSU recipients and employers must comply with securities laws, insider trading rules, and plan terms.

• SEC Form 4 filings: officers, directors, and beneficial owners of more than 10% of a registrant’s equity must report certain transactions in company stock via Form 4 within two business days of the transaction. Public insider purchases and grants are often visible in Form 4 filings; for example, an insider purchase can be reported in filings and company disclosures.

• Rule 144 and transfer restrictions: securities issued subject to resale limitations or holding requirements must comply with Rule 144 and registration conditions. Close transfer restrictions for private company shares commonly apply.

• Insider trading and blackout windows: recipients who are insiders must follow company insider trading policies and blackout periods, particularly around quarterly earnings releases or other material nonpublic information. Trading while in possession of material nonpublic information may violate securities laws.

• IPO lock‑ups: following an IPO, lock‑up agreements commonly prevent the sale of shares for a period (usually 90–180 days), which affects liquidity of restricted stock and RSU settlements in public companies.

These legal and regulatory constraints can limit the timing and mechanics of sale after vesting.

Corporate events and special provisions

Corporate transactions — mergers, acquisitions, reorganizations, and IPOs — can materially affect unvested awards. Common treatments include:

• Acceleration clauses: partial or full acceleration of vesting on change of control.
• Assumption: the acquirer assumes outstanding awards and converts them to equivalent awards on new equity.
• Cash‑out: unvested awards are cashed out at a negotiated value.
• Cancellation: acquirer cancels unvested awards, sometimes with severance or alternative awards provided.

Plan documents and award agreements specify treatment. The presence or absence of single‑trigger or double‑trigger acceleration provisions is often a negotiated term for senior hires.

Comparison with other equity compensation

Restricted stock and RSUs differ from other common equity awards:

• Stock options: grant the right to buy shares at a strike price. Options provide leverage and asymmetric upside but can expire worthless if the market price is below strike. Tax timing differs: incentive stock options (ISOs) have special tax features; nonqualified stock options (NSOs) create ordinary income at exercise.

• Stock appreciation rights (SARs): pay the appreciation in cash or shares without requiring exercise price purchase. Taxed at vest or exercise depending on structure.

• Employee stock purchase plans (ESPPs): allow employees to buy company stock at a discount, often through payroll deductions and offering periods.

Comparison points:

• Risk: restricted stock/RSUs have intrinsic value at vest (unless stock goes to zero), while options can be worthless.
• Upside: options can offer higher percentage upside; restricted stock offers straightforward equity value.
• Tax timing: restricted stock (without 83(b)) and RSUs trigger ordinary income at vest/settlement; options trigger income at exercise (NSOs) or at sale (ISOs with special conditions).
• Dilution: all equity grants cause dilution; companies model expected dilution when granting awards.

Advantages and disadvantages

For employees:

• Advantages:
  • Value on vest even if stock price is flat (RSAs/RSUs retain some value).
  • No purchase cost for most RSUs; straightforward equity ownership.
  • Helps align interests with shareholders.
• Disadvantages:
  • Tax at vest can create cash needs.
  • Concentration risk in employer stock.
  • Limited liquidity for private company shares and lock‑ups after IPO.

For employers:

• Advantages:
  • Retention tool and performance incentive.
  • Conserves cash.
• Disadvantages:
  • Compensation expense under ASC 718.
  • Dilution of existing shareholders.

Valuation and examples

Value of restricted stock or RSUs at vest is typically calculated as fair market value (FMV) per share times number of shares that vest. In public companies FMV is the market price; in private companies FMV is determined under valuation methodologies (409A valuations for options and related guidance for restricted stock).

Numerical example — value and withholding:

• Award: 2,000 RSUs vesting in year 3.
• FMV at vest: $30 per share.
• Gross value at settlement: 2,000 × $30 = $60,000.
• Employer withholding at 30% (federal/state/payroll approximate): $18,000.
• Net shares delivered in sell‑to‑cover scenario: employer sells $18,000 worth (600 shares) and delivers 1,400 shares to employee.

Tax basis for employee: $60,000 spread over 1,400 delivered shares equals $42.857 per share basis for those shares (but actual tax basis depends on amount withheld and how shares were handled in the brokerage).

Sample vesting schedules:

• Typical: 4‑year schedule with 1‑year cliff (25% at year 1, then 1/48 monthly thereafter).
• Accelerated: 50% vesting at year 2 with remaining 50% dependent on performance.

Plan administration and operational issues

Administrative components of restricted stock plans include:

• Grant agreements and plan documents that define vesting, forfeiture, change‑of‑control treatment, and other terms.
• Recordkeeping by the company, often outsourced to a plan administrator or transfer agent.
• Payroll withholding and reporting, including Form W–2 reporting for employees and Form 1099 for certain nonemployees.
• Brokerage and transfer agent coordination to issue or transfer shares and to implement sell‑to‑cover or net share settlement.
• Communications to employees about tax consequences, trading windows, and blackout periods.

Operational challenges include valuation for private companies, liquidity management for settled shares, and ensuring compliance with securities laws and tax reporting.

International considerations

Restricted stock and RSUs granted to employees located outside the U.S. involve additional complications. Key differences often include:

• Local tax treatment: some jurisdictions tax at grant, some at vest, and withholding rules differ.
• Social taxes: employer and employee payroll taxes on equity may apply in some countries.
• Reporting obligations: local filing and disclosure rules can add administrative burden.
• Exchange controls and restrictions on cross‑border share transfers.

Companies issuing global awards typically engage local counsel and payroll providers to coordinate withholding, reporting, and correct contractual language.

Tokenization, digital custody, and market developments (relevant context)

Recent market developments show increasing intersection between traditional equity and tokenization on blockchains. For example, as of November 15, 2024, Ondo Finance announced the issuance of tokenized shares representing BitGo stock across multiple blockchains, marking an early official tokenization of public company shares. Source: Ondo Finance announcement (Nov 15, 2024).

As of January 22, 2025, the first SEC‑approved spot Dogecoin ETF began trading, illustrating the evolving regulatory stance on digital asset products. Source: market reports (Jan 22, 2025).

As of January 21, 2025, company insider transactions continue to be disclosed via SEC filings; for example, an insider purchase by a GameStop director was reported in a Form 4 filing on that date. Source: market filing reports (Jan 21, 2025).

Implications for restricted stock:

• Tokenization potentially creates new mechanisms for representing and transferring equity and could affect liquidity for private company restricted stock in the future.
• Custody and compliance remain critical; any tokenized representation must preserve legal ownership rights and comply with securities regulations and transfer restrictions.

Administrators and recipients should monitor developments in digital custody and tokenized equity because these technologies may offer faster settlement and broader access while demanding rigorous KYC/AML, custody, and reporting controls. When discussing wallets, consider purpose‑built solutions; for Web3 wallets and custody of tokenized assets, Bitget Wallet is an example of an integrated custody option that companies and individuals may evaluate as part of their operational architecture.

Risks and risk management

Restricted stock and RSUs create several risks:

• Concentration risk: holding a large portion of net worth in one employer’s stock can magnify downside.
• Liquidity risk: private company shares may have transfer restrictions and no ready market.
• Tax‑timing risk: tax is due at vest/settlement even if shares are illiquid.
• Regulatory risk: insider trading rules and blackout windows limit sale timing.

Risk mitigation strategies:

• Diversification: sell a portion of vested shares when permitted and reinvest.
• Preplanned trading programs: prearranged 10b5‑1 trading plans (for eligible individuals) can provide an orderly way to sell shares while complying with insider rules.
• Tax planning: evaluate 83(b) elections where appropriate, and coordinate withholding methods to reduce liquidity strain.
• Hedging: in some cases, hedging strategies may be available but often require company policy approval and careful legal review.

Employee decision considerations and best practices

When you receive restricted stock or RSUs, consider these steps:

1. Review grant documents: understand vesting schedule, forfeiture triggers, acceleration provisions, and settlement mechanics.
2. Assess tax exposure: estimate taxes at vest or settlement and arrange for funds if required.
3. Consider an 83(b) election for RSAs only: evaluate potential benefits versus risks within 30 days of grant.
4. Plan for diversification: set target limits for employer stock exposure to manage concentration risk.
5. Coordinate with financial goals: integrate equity grants into overall financial planning, estate planning, and retirement strategies.
6. Consult professionals: tax advisors and financial planners can provide personalized recommendations.

Practical tip: ask HR or equity admin about the withholding method, available brokerages, and potential blackout dates before vesting events.

Frequently asked questions (FAQ)

Q: Do RSUs grant voting rights?
A: No. RSUs are contractual promises and do not confer shareholder rights until settlement. Some plans provide dividend equivalents, but voting rights attach only when shares are delivered.

Q: Can you make an 83(b) election for RSUs?
A: Generally no. An 83(b) election applies to the transfer of property; RSUs do not transfer property at grant in standard structures, so the election is not available.

Q: What happens to unvested restricted stock on termination?
A: Typically, unvested restricted stock is forfeited on voluntary resignation or termination for cause. Some plans provide pro‑rata vesting or accelerated vesting on retirement or death. Check award agreements.

Q: How is withholding handled at vest for RSUs?
A: Employers commonly withhold taxes by selling shares (sell‑to‑cover), withholding net shares, or requesting cash. The chosen method can affect liquidity and the number of shares received.

Q: Are there 409A valuation implications for restricted stock?
A: 409A primarily governs deferred compensation valuation; however, private company awards often rely on 409A valuations to support grant‑date FMV assessments for taxation and accounting.

Notable industry practices and trends

Common market practices:

• Standard public company grants often follow a four‑year vest with a one‑year cliff.
• Growing use of RSUs in public companies due to administrative simplicity and predictable value.
• Private companies may issue RSAs with 83(b) elections encouraged for founders and early employees to obtain favorable tax treatment.

Industry trends:

• Increased interest in tokenization for liquidity and settlement efficiency, while preserving regulatory compliance (see Ondo Finance tokenized stock announcement, Nov 15, 2024).
• Regulators and custodians are evolving frameworks for digital custody and tokenized securities.

Plan administration checklist (operational best practices)

For plan sponsors and administrators:

• Maintain clear, accessible plan documents and award agreements.
• Coordinate with payroll and transfer agents to manage withholding and settlement.
• Communicate vesting, tax, and trading window rules to participants.
• Implement robust recordkeeping and reporting for tax forms and securities filings.
• Ensure insider trading policies and blackout windows are enforced.

For recipients:

• Keep award agreements and plan summaries in a secure location.
• Track vesting schedules and tax dates.
• Confirm brokerage and settlement instructions before vest events.

References and further reading

Sources commonly used for practical guidance on restricted stock and RSUs include authoritative tax and accounting guidance and educational resources. For up‑to‑date official rules consult IRS guidance on Section 83, FASB ASC Topic 718 for accounting, and company plan documents.

Recent market reports referenced in this article (dates shown):

• Ondo Finance tokenization announcement for BitGo stock — November 15, 2024 (industry announcement).
• Spot Dogecoin ETF began trading on Nasdaq — January 22, 2025 (market reporting).
• Insider Form 4 filing reporting an officer/director purchase — January 21, 2025 (SEC filing reports).

(These items illustrate market context for equity, tokenization, and public filings; they are cited for timing and factual context.)

Employee checklist before accepting restricted stock or RSUs

• Confirm exact number of shares, vesting schedule, and type of award (RSA vs RSU).
• Ask whether dividend equivalents are paid prior to settlement.
• Clarify tax withholding method and whether company brokers will facilitate sell‑to‑cover.
• If offered an RSA, determine whether an 83(b) election is recommended in consultation with a tax advisor.
• Understand blackout windows, insider rules, and post‑IPO lock‑ups that may restrict sales.

Final practical guidance and next steps

Restricted stock and RSUs are powerful tools for employee compensation and company retention. When you receive restricted stock, document grant terms, model tax exposure at vest, and plan for diversification. Employers should balance retention benefits against expense recognition and dilution, and maintain clear administration and communications.

To stay informed about custody and digital asset developments that may intersect with equity programs, monitor credible announcements about tokenized securities and evolving regulatory guidance. As of November 15, 2024, tokenization initiatives (e.g., Ondo Finance’s tokenized BitGo stock) show how traditional shares may be represented onchain while preserving regulatory protections.

Explore Bitget resources and the Bitget Wallet for custodial and wallet solutions that may integrate with future tokenized equity workflows. For practical next steps, speak with your company’s equity administrator and a qualified tax professional to tailor a plan that fits your financial goals.

Further exploration: review your award agreement now, estimate the tax at anticipated vest dates, and schedule a consultation with a tax advisor if you are considering an 83(b) election for an RSA.

FAQ (short answers)

Q: Will restricted stock always be taxable at vest?
A: RSUs are taxable at settlement; RSAs are taxable at vest unless an 83(b) election is timely filed.

Q: Can restricted stock be tokenized?
A: Tokenization of equity is emerging; tokenized representations must preserve legal ownership and comply with securities and custody rules. Recent industry announcements demonstrate viability, but legal and operational frameworks are required.

Q: How can I reduce concentration risk?
A: Sell vested shares when allowed and diversify proceeds into non‑employer investments per your risk tolerance.

Q: Who files Form 4 and why might it matter?
A: Company officers, directors, and significant owners file Form 4 to disclose trades and grants; these filings provide market transparency for insiders’ transactions.

Want to learn more about managing equity and digital custody options? Explore Bitget's educational resources and Bitget Wallet for custody and wallet features that support secure asset management and potential tokenized asset workflows.