Restricted Securities Management

There are two types of restricted stock: restrictions placed on stock by securities law (Rule 144) and restrictions placed on stock by the employer.

Rule 144

The restriction placed on stock under Rule 144 are securities acquired. Restricted securities under Rule 144 will almost always have a certificate stamped. We work with executives to comply with the necessary regulations under Rule 144 and file all of the required notices to the SEC and employer.

Employer Restrictions

The restrictions placed on stock by the employer is when a company issues a stock grant and imposes a condition under which the recipient has to give up, or forfeit, the shares if their employment terminates before a particular date. When the recipient has worked for the company long enough so they can terminate employment without forfeiting shares, the stock is vested. Executive officers and directors may also be subject to restrictions during certain "Blackout Periods."  These "Blackout Periods" normally will occur during reporting periods by the corporation.

The tax treatment of stock grants and sales depends on whether the shares are vested when the executive receives them. If the shares are not vested, the executive can choose to treat them as if they were vested by filing with the IRS within 30 days after the company transfers the stock. A statement will need to be filed called a Section 83b election.

In determining to make the 83b election, executives need to understand how the election can ultimately affect their tax liability in a positive, as well as a negative, way. By helping our clients understand the rules and requirements of the 83b election on their restricted stock, they can be assured they are making proper decisions about their stock grants.