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Friday, March 18, 2022 10:27:48 PM
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03/17/2022
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.
The restrictions are intended to deter premature selling that might adversely affect the company. Restricted stock typically becomes available for sale under a graded vesting schedule that lasts several years. Restricted stock is also referred to as "letter stock" and "section 1244 stock."
KEY TAKEAWAYS
Restricted stock is a form of executive compensation where non-transferable shares are issued to employees that come with conditions on the timing of the sale.
The restrictions include a vesting period that may last several years, on the condition that the employee will continue working at the company for a number of years or until a particular company milestone is met.
The use of restricted stock is most common in established companies that want to motivate employees by giving them a share of the equity.
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