Restricted stock is company stock issued to you upfront but encumbered by vesting, transfer restrictions, or company repurchase rights until you earn full ownership.

How it works

Founders often receive restricted stock at incorporation with reverse vesting: you own the shares immediately, but the company can repurchase unvested shares at cost if you leave. A typical schedule vests over four years with a one-year cliff.

Because you hold stock (not an option), you may owe tax on the fair market value at grant — even before the company is worth much. U.S. recipients often file an 83(b) election within 30 days to pay tax on today’s low value instead of higher value later. Missing that window can create painful tax bills when shares vest at a much higher valuation.

Investors may require founders to re-vest a portion of existing holdings at a financing to ensure continued commitment.

Why it matters

• Founders: Understand 83(b) deadlines, repurchase mechanics, and how acceleration clauses work in an acquisition.
• Investors: Vesting protects the cap table if a key person leaves early; unvested repurchase rights keep equity available for replacements.

Common mistake

Assuming restricted stock works like RSUs or options. With restricted stock you are a shareholder from grant day — tax and voting rights follow stock ownership rules, not option exercise rules.

Related ideas

See also reverse vesting, RSU, cap table, and Rule 701.