Restricted stock is the 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 became more popular in the mid-2000s 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. Restricted stock holders pay tax on the capital gain or loss represented by the difference between the stock’s price on the date it vests and the date it is sold. In addition, restricted stock is taxable as ordinary income in the year it vests. The amount that must be declared as income is the stock’s fair market value on the vesting date minus its original exercise price. [Source:
http://www.investopedia.com]
Sayed Farrukh Ahmed
Assistant Professor
Faculty of Business & Economics
Daffodil International University
