Business Lawyers Blog
Startup companies often use stock options to attract new quality talent. If you have decided to do so, there are some special considerations when deciding the best approach to compensate your employees. Two common approaches include restricted stock and stock options.
What is Restricted Stock?
Restricted stock is a stock plan that gives particular employees a right to purchase stock shares. These restricted shares may be at a discounted value, fair market value, or even at no cost. Despite the right to buy the restricted stock, the shares are not actually owned by the employee until a particular triggering event occurs. For example, a company may restrict the transfer of the stock until a particular amount of time has elapsed (e.g., three years from the date of hire). Another example would be a condition regarding company performance (e.g., $1m in gross revenue). The employee then takes possession after the triggering event occurs, thereby lifting the “restriction” on the stock.