The Ownership of Restricted Stocks: Grant vs. Vesting

When it comes to restricted stocks, the question often arises as to who owns the stocks when they are granted, specifically in comparison to vesting. The difference between these two stages is significant and can impact various aspects, such as dividends, stock ownership, and tax consequences. This article explores the nuances of restricted stock units (RSUs) and other forms of restricted stock, clarifying the experiences and perspectives of several professionals.

The Experience of Different Employees

Contrary to what some employees may expect, the ownership of restricted stocks upon grant does not always equate to immediate equity ownership. This can be illustrated by the experiences of different individuals, such as the author, who have encountered varying models of restricted stock distribution.

The Perspective of the Author

The author shares that in their experience, Restricted Stock Units (RSUs) did not offer dividend payments until vested. When the RSUs vested, they were awarded the stock at the current market price, and the employee had the option to sell some shares to cover the taxes incurred from the income event.
This scenario supports the notion that RSUs are not fully owned by the employee until the vesting date. The income event triggering the tax liability also marks the moment when the RSUs are considered owned.

Diverse Scenarios in the Industry

There could be other forms of restricted stock where the shares are initially issued to the employee but carry restrictions that only lapse upon vesting. According to the author, such an arrangement is consistent with the experiences of employees at companies like Cisco, Amazon, and HP, where restricted stocks cannot be sold until a specified period has elapsed.

One noteworthy difference is a scenario where physical certificates of the shares are retained by the company until vesting. In these cases, while the stock is under the name of the stockholder, the employee still needs to physically hold these certificates along with a signed stock power, which are only released upon vesting.

Additional Considerations

Some forms of restricted stock may function as contractual future promises rather than direct equity ownership. These promises are realized only when vested, which might create a different framework for understanding stock ownership.

Sources and Legal Considerations

It is important to note that this article is based on the experiences and observations of employees and does not serve as legal or professional advice. The treatment and ownership of restricted stocks can vary significantly across different companies and legal jurisdictions. Therefore, any decision regarding restricted stock should be made in consultation with a legal advisor to ensure compliance with all applicable laws and regulations.

Conclusion

The ownership of restricted stocks is a critical topic in the context of stock options and RSUs. Understanding the distinction between grant and vesting, as well as the specific terms and conditions of any restricted stock award, is crucial for both employees and employers. This knowledge helps in managing expectations, adhering to legal requirements, and making informed financial decisions.

For those seeking more detailed information or guidance on these matters, consulting with legal professionals or financial advisors is recommended. The insights provided here aim to shed light on the various scenarios and experiences found in the industry.