Restricted stock put option

A restricted stock refers to unregistered shares of ownership in a corporation that are issued to corporate affiliates such as executives and directors. Restricted stock is nontransferable and must be traded in compliance with special SEC regulations.

Restricted Stock

Also referred to as "letter stock" and "section stock," it typically becomes available for sale under a graded vesting schedule that lasts several years. Restricted stock became more popular in the mids as companies were required to expense stock-option grants.

Insiders are given restricted stock after merger and acquisition activity, underwriting activity and affiliate ownership in order to prevent premature selling that might adversely affect the company. An executive may have to forfeit his or her restricted stock if he or she leaves the company, fails to meet corporate or personal performance goals or runs afoul of SEC trading restrictions.

The SEC regulations that govern the trading of restricted stock are auction livestock market producer under SEC Rulewhich describes the registration and public trading of restricted stock and the limits on holding periods and volume.

The taxation of restricted stock, governed by Section of the Internal Revenue Codeis complex.

In addition, restricted stock is taxable as ordinary income in the year it vests. However, the restricted stock holder may do a Section 83 b election, which lets him or her use the price on the grant date, not the vesting date, for the purposes of calculating ordinary income tax. The tax bill must be paid sooner in this case, but it may be substantially lower if the stock appreciates restricted stock put option the grant date and the vesting date.

The risk of taking this election is that if the restricted stock holder leaves the company before the shares vest, the shares are forfeited and taxes already paid are not refunded. Dictionary Term Of The Day.

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