Restricted Stock
Definition
Actual shares of company stock that are granted to you immediately but come with restrictions — typically a vesting schedule. If you leave before vesting, the company can repurchase your unvested shares at the original price (often near $0 at early startups). This is different from RSUs: with restricted stock, you own the shares from day one.
Real-World Example
A co-founder receives 1,000,000 shares of restricted stock at $0.001/share, subject to 4-year vesting with a 1-year cliff. They file an 83(b) election within 30 days, paying $1,000 in taxes. If the company is later worth $50/share, all gains are taxed at long-term capital gains rates.
Common Mistake
Failing to file an 83(b) election within 30 days. Without it, you are taxed on the value of shares as they vest — which could be enormously expensive if the company has grown. There is no extension; miss the 30-day window and you cannot go back.
Why It Matters
Restricted stock is common for founders and very early employees. Combined with an 83(b) election, it offers the best possible tax treatment for startup equity. But the 30-day 83(b) deadline is absolute.
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