---
title: "What Is Restricted Stock?"
term: "Restricted Stock"
description: "Restricted stock is company shares issued to a holder but subject to vesting, transfer limits, or repurchase rights until conditions are met — common for founders and early employees."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/restricted-stock
---

# What Is Restricted Stock?

> Restricted stock is company shares issued to a holder but subject to vesting, transfer limits, or repurchase rights until conditions are met — common for founders and early employees.

**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](/glossary/reverse-vesting), [RSU](/glossary/rsu), [cap table](/glossary/cap-table), and [Rule 701](/glossary/rule-701).

## FAQ

### What is restricted stock in simple terms?

Restricted stock is actual company stock you own on paper, but the company can take it back or block transfers until you vest or satisfy other conditions. Unlike stock options, you typically hold shares from day one, which creates tax timing decisions.

### Why does restricted stock matter?

For founders, restricted stock with reverse vesting is the standard way to align early equity with continued service. For investors, vesting schedules protect against a departing founder keeping a large undiluted stake.


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Source: https://venturecapitaltracker.com/glossary/restricted-stock