Cain & Kiel Law

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Are you considering using restricted stock for your company?

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Running a company has its ups and downs. If you have recently gotten your company off the ground, you may not have garnered substantial success as of yet. However, you may have reached a number of important milestones and feel that your company is well on its way to making it big.

As your company grows and you bring in more parties, you may consider the use of stocks in your business. One area that you may have a particular interest in is the use of restricted stock. As a small company, restricted stock may prove more useful to your business.

Using restricted stock

When your company does not have much value, restricted stock can provide certain stipulations on the stocks that may better benefit the company than simply utilizing stock options. If your company does become considerably valuable later on, using restricted stock may not have the same benefits because, at this point, the restricted stock will likely have significant value as well, which could result in tax burdens on those who receive the stock.

Still, the use of restricted stock early on can provide an incentive to prospective employees. It is not unusual for individuals to feel wary about jumping in with a new company due to the numerous risks, but by providing restricted stock, employees own a part of the company and have a chance for significant financial benefits if the company proves successful.

More information on restricted stock

Providing employees or other parties with restricted stock would essentially give them actual ownership in your company. The recipients would receive the right to dividends, if your company issues them, and it would give the recipients the ability to vote in yearly company meetings. As you can see, individuals who hold restricted stock have many of the same rights as you and any other founders of your company.

Still, the stocks do have restrictions. Commonly, these restrictions may include giving the company the right to repurchase unvested shares if an employee leaves your company.

Restricted stock agreement

Of course, providing any type of stock to employees can have serious implications. When using restricted stock, it is important that you and your employees or other restricted stockholders understand the stipulations that come along with the stock. Creating a restricted stock agreement may prove wise. In order to ensure that you include the necessary information, discussing this step with a Texas business attorney may work in your best interests and the interests of your company.

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