Stock Charted
Glossary

Restricted Stock

Restricted stock is company stock granted to an employee or other recipient that cannot be sold or transferred until certain conditions, usually continued service or performance goals, are met.

What Is Restricted Stock?

Restricted stock is shares of a company's common stock given to a person, most often an employee, under a grant that places limits on those shares. The recipient typically becomes the registered owner on the grant date but cannot sell, transfer, or pledge the shares until the restrictions lapse. The restrictions are usually tied to vesting: the shares become fully transferable after the recipient stays with the company for a set period, or after specified performance targets are reached. If the recipient leaves before the shares vest, the unvested shares are generally forfeited back to the company.

Companies use restricted stock to link pay with long-term commitment. It is common at startups and in executive compensation packages.

How It Works

Restricted stock is usually granted with a vesting schedule. A grant might vest in equal portions over several years, or it might vest all at once after an initial waiting period. Until vesting, the shares may be held by the company or a transfer agent, and the recipient may or may not receive dividends depending on the plan terms. Once the shares vest, they become ordinary shares that the holder can generally sell, subject to company trading policies and securities law, including insider trading rules.

Tax Treatment

In the United States, restricted stock is generally taxed as ordinary income when the shares vest, based on their value at that time. A recipient may instead file an election under Section 83(b) of the Internal Revenue Code, within 30 days of the grant date, to be taxed on the value at grant. This choice carries risk: if the stock later loses value or the shares are forfeited, the upfront tax may not be recovered. Tax rules differ by country and change over time, and individual circumstances matter, so details are best confirmed with a qualified tax professional.

Why It Matters to Investors

For investors reading company filings, restricted stock appears in equity compensation disclosures. Newly issued restricted shares add to the outstanding share count, which contributes to dilution. Unvested restricted shares may be excluded from some earnings per share calculations until they vest and may be included in diluted measures under certain conditions. Large vesting events can also increase the number of shares that become available for sale.

Updated October 20, 2026. For general education only; not financial, tax or legal advice.

Browse the Glossary

Related Terms

Common Stock

Common stock is the most widely issued type of corporate equity, giving holders ownership in a company along with voting rights and a residual claim on its assets and earnings.

Vesting

Vesting is the process by which an employee or other recipient earns full ownership of equity or retirement benefits over time, typically by remaining with the employer for a set period.

Dividend

A dividend is a payment a company makes to its shareholders, usually in cash or additional shares, as a way of distributing part of its profits.

Dilution

Dilution is the reduction in an existing shareholder's ownership percentage, or in per-share measures such as earnings, that occurs when a company issues new shares.

Earnings Per Share (EPS)

Earnings per share is the portion of a company's profit allocated to each outstanding share of its common stock, calculated by dividing net income available to common shareholders by the weighted average number of shares outstanding.

Restricted Stock Unit (RSU)

A restricted stock unit is a promise from an employer to give an employee shares of company stock, or their cash value, once certain conditions such as a vesting period are met.

Stock Option

A stock option is a contract that gives its holder the right, but not the obligation, to buy or sell a stock at a fixed price on or before a set expiration date.

Equity Compensation

Equity compensation is a form of non-cash pay that gives employees or other service providers an ownership stake in their employer, usually through company shares or rights to acquire them.