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Restricted stock

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82:"Double trigger" acceleration provision, stating that the restricted stock vests if the company is acquired by a third party and the employment of the grantee is terminated within a certain time frame. This protects employees from losing the unvested portion of their equity share award in case the employees are forced out by new management after a change in control. Another alternative is "single trigger" acceleration under which the change of control itself accelerates the vesting of the stock, but this structure is more risky for investors because following an acquisition of the company, key employees will not have any equity award that provides a financial incentive to remain with the company. 37:, is stock of a company that is not fully transferable (from the stock-issuing company to the person receiving the stock award) until certain conditions (restrictions) have been met. Upon satisfaction of those conditions, the stock is no longer restricted, and becomes transferable to the person holding the award. Restricted stock is often used as a form of employee compensation, in which case it typically becomes transferable (" 146:
property becomes transferable, whichever is earlier. In the case of restricted stock, the former date is generally known as the "vesting date" and is the date when the employee recognizes income for tax purposes (assuming that the restricted stock is not transferable at an earlier date, which is how employers generally structure their restricted stock awards). Employees pay
67:) have more recently become popular among venture companies as a hybrid of stock options and restricted stock. RSUs involve a promise by the employer to grant restricted stock at a specified point in the future, with the general intention of delaying the recognition of income to the employee while maintaining the advantageous accounting treatment of restricted stock. 179:
attached to it, and therefore the market capitalization of a company with restricted stock outstanding may be overstated. However, restricted stock has less of an impact than stock options in this regard, as the number of shares awarded tends to be lower and the discount for illiquidity tends to be smaller.
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A period of time before vesting, intended to prevent employees from "walking away" from the venture. There is generally a one-year "cliff" representing the formative stage of the company when the founders' work is most needed, followed by a more gradual vesting over a four-year schedule representing
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Under Section 83 of the Internal Revenue Code, the value of property transferred in connection with the performance of services is included in gross income, and is recognized as such on the date on which the property is no longer subject to a substantial risk of forfeiture, or the date on which the
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Restricted stock is generally incorporated into the equity valuation of a company by counting the restricted stock awards as shares that are issued and outstanding. This approach does not reflect the fact that restricted stock has a lower value than unrestricted stock due to the vesting conditions
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of the restricted stock at the time of the grant, rather than at the time of vesting. This is often desirable to minimize income tax liability when the restricted stock is granted at a very low value, but is risky in that the tax paid on the stock award is non-refundable even if the stock does not
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The median number of stock options (per company) granted by Fortune 1000 firms declined by 40% between 2003 and 2005, and the median number of restricted stock awards increased by nearly 41% over the same period (“Expensing Rule Drives Stock Awards,” Compliance Week, March 27, 2007). From 2004
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were a popular form of employee compensation because it was possible to record the cost of compensation as zero so long as the exercise price was equal to the fair market value of the stock at the time of granting. Under the same accounting standards, awards of restricted stock would result in
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issued Statement no. 123(R), Share-Based Payment, which requires expense treatment for stock options for annual periods beginning in 2005. (Statement no. 123(R) is now incorporated in FASB Accounting Standards Codification Topic 718, Compensation—Stock Compensation.)
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switched from stock options to restricted stock in 2003, and by May 2004 about two-thirds of all companies surveyed by HR consultancy Mercer had reported changing their equity compensation programs to reflect the impact of the new option expensing rules.
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a more incremental growth stage. Founders are sometimes permitted to recognize a portion of the time spent at the company before investment in their vesting schedule, generally from six months to two years.
106:, P.L. 108–357, added Sec. 409A, which accelerates income to employees who participate in certain nonqualified deferred compensation plans (including stock option plans). Later in 2004, 421: 276: 41:") upon the satisfaction of certain conditions, such as continued employment for a period of time or the achievement of particular product-development milestones, 414: 120: 170:
Revenue authorities in the United Kingdom and the Republic of Ireland have issued guidelines on the taxation of restricted stock and RSU awards.
89:. This is intended to stabilize the stock price of the company after the IPO by preventing a large sale of stock on the market by the founders. 407: 85:"Market standoff provision", stating that holders of restricted stock may not sell for a certain period of time (usually 180 days) after an 652: 103: 98:
Executive compensation practices came under increased congressional scrutiny in the United States when abuses at corporations such as
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A grantee of restricted stock may make an "83(b) election" to recognize the income from the restricted stock grant based on the
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through 2010, the number of restricted stock holdings of all reporting executives in the S&P 500 increased by 88%.
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on any subsequent appreciation or depreciation in the value of the restricted stock in the year in which it is sold.
1200: 665: 659: 202: 1054: 729: 360:"ERSM20192 - Employment-related securities and options: what are securities: Long Term Incentive Plan (LTIP)" 1008: 869: 764: 647: 123:(GAAP) which became effective in 2006 led to restricted stock becoming a more popular form of compensation. 86: 896: 234: 119:
recognizing compensation cost equal to the fair market value of the restricted stock. However, changes to
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on the value of the restricted stock in the year in which it vests, and then pay
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goals or other financial targets. Restricted stock is a popular alternative to
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Lecture 18 - Legal and Accounting Basics for Startups
941: 816: 715: 635: 543: 510: 471: 437: 415: 8: 203:"Employee Equity: Restricted Stock and RSUs" 74:–backed startups may include the following: 306: 304: 232:Attorney Carolynn Levy, General Counsel at 422: 408: 400: 121:generally accepted accounting principles 188: 382:"Restricted Stock Units - Income Tax" 196: 194: 192: 7: 270: 268: 266: 336:Petra, Steven T. (February 2012). 104:American Jobs Creation Act of 2004 25: 678:Electronic communication network 282:. Grant Thornton. Archived from 201:Wilson, Fred (8 November 2010). 1: 672:Multilateral trading facility 384:. Irish Revenue Commissioners 1095:Returns-based style analysis 891:Post-modern portfolio theory 797:Security characteristic line 849:Efficient-market hypothesis 753:Capital asset pricing model 690:Straight-through processing 1232: 666:Alternative Trading System 362:. HM Revenue & Customs 57:and income tax treatment. 1216:Employee stock ownership 730:Arbitrage pricing theory 340:. Journal of Accountancy 1009:Initial public offering 870:Modern portfolio theory 765:Dividend discount model 648:List of stock exchanges 87:initial public offering 897:Random walk hypothesis 61:Restricted stock units 1035:Market capitalization 844:Dollar cost averaging 35:restricted securities 18:Restricted securities 1206:Fundamental analysis 855:Fundamental analysis 839:Contrarian investing 802:Security market line 707:Liquidity aggregator 684:Direct market access 595:Quantitative analyst 248:Springmeyer, Bryan. 1100:Reverse stock split 1045:Market manipulation 969:Dual-listed company 829:Algorithmic trading 759:Capital market line 561:Inter-dealer broker 311:Damodaran, Aswath. 228:Stanford University 102:became public. The 53:, due to favorable 49:, particularly for 1140:Stock market index 979:Efficient frontier 918:Technical analysis 876:Momentum investing 698:(private exchange) 588:Proprietary trader 530:Shares outstanding 520:Authorised capital 275:Adkins, G. Edgar. 43:earnings per share 1201:Corporate finance 1188: 1187: 989:Flight-to-quality 741:Buffett indicator 431:Financial markets 162:ultimately vest. 159:fair market value 152:capital gains tax 27:Category of stock 16:(Redirected from 1223: 1105:Share repurchase 817:Trading theories 702:Crossing network 660:Over-the-counter 497:Restricted stock 453:Secondary market 424: 417: 410: 401: 394: 393: 391: 389: 378: 372: 371: 369: 367: 356: 350: 349: 347: 345: 333: 327: 326: 324: 322: 317: 308: 299: 298: 296: 294: 288: 281: 272: 261: 260: 258: 256: 245: 239: 220: 214: 213: 211: 209: 198: 55:accounting rules 33:, also known as 31:Restricted stock 21: 1231: 1230: 1226: 1225: 1224: 1222: 1221: 1220: 1191: 1190: 1189: 1184: 1175:Voting interest 1085:Public offering 1020:Mandatory offer 994:Government bond 974:DuPont analysis 937: 933:Value investing 928:Value averaging 923:Trend following 908:Style investing 903:Sector rotation 818: 812: 791:Net asset value 717:Stock valuation 711: 631: 539: 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794: 788: 783: 778: 776:Earnings yield 773: 771:Dividend yield 768: 762: 756: 750: 744: 738: 733: 727: 721: 719: 713: 712: 710: 709: 704: 699: 693: 687: 681: 675: 669: 663: 662:(off-exchange) 657: 656: 655: 650: 639: 637: 636:Trading venues 633: 632: 630: 629: 624: 623: 622: 612: 607: 602: 597: 592: 591: 590: 585: 575: 570: 565: 564: 563: 558: 547: 545: 541: 540: 538: 537: 535:Treasury stock 532: 527: 522: 516: 514: 508: 507: 505: 504: 502:Tracking stock 499: 494: 489: 484: 478: 476: 469: 468: 466: 465: 460: 455: 450: 448:Primary market 444: 442: 435: 434: 429: 427: 426: 419: 412: 404: 396: 395: 373: 351: 328: 300: 262: 240: 215: 187: 186: 184: 181: 175: 172: 167: 164: 142: 139: 137: 134: 95: 92: 91: 90: 83: 80: 26: 24: 14: 13: 10: 9: 6: 4: 3: 2: 1228: 1217: 1214: 1212: 1209: 1207: 1204: 1202: 1199: 1198: 1196: 1181: 1178: 1176: 1173: 1171: 1168: 1166: 1163: 1161: 1158: 1156: 1153: 1151: 1148: 1146: 1143: 1141: 1138: 1136: 1133: 1131: 1128: 1126: 1123: 1121: 1118: 1116: 1113: 1111: 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36: 32: 19: 1211:Stock market 1160:Tender offer 1080:Public float 1050:Market trend 1040:Market depth 860:Growth stock 834:Buy and hold 743:(Cap-to-GDP) 583:Floor trader 573:Market maker 556:Floor broker 544:Participants 496: 487:Golden share 482:Common stock 458:Third market 386:. 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Index

Restricted securities
vests
earnings per share
stock options
executives
accounting rules
venture capital
initial public offering
Enron
American Jobs Creation Act of 2004
FASB
stock options
generally accepted accounting principles
Microsoft
income tax
capital gains tax
fair market value



"Employee Equity: Restricted Stock and RSUs"
Lecture 18 - Legal and Accounting Basics for Startups
Stanford University
Y Combinator
"Negotiating Restricted Stock Agreements - Preparing for Series A"



"Restricted stock: the tax impact on employers and employees"
the original

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