TLDR:
Restricted stock is company stock granted to employees or executives that is subject to vesting conditions and trading restrictions, typically forfeited if the employee leaves before vesting is complete.
Restricted Stock vs. RSU — Key Differences
While both restricted stock and restricted stock units (RSUs) are equity compensation tools subject to vesting, they differ in important ways. Restricted stock is actual stock ownership from the grant date, with voting rights and the ability to file an 83(b) election to start the capital gains holding period. RSUs are a contractual promise to deliver stock upon vesting — the recipient doesn’t own shares or have voting rights until vesting occurs, and there is no 83(b) election available. RSUs are simpler to administer and don’t require the employee to make any purchase, making them popular at larger companies.
Restricted Stock vs. Stock Options
Restricted stock represents actual share ownership granted to recipients but subject to vesting and repurchase. Stock options represent the right to purchase shares at a fixed price in the future. The key differences: restricted stock gives immediate ownership (voting rights, potential dividends) but tax obligations at grant or vesting; stock options defer ownership until exercise but offer leverage and tax flexibility. For founder grants at company formation, restricted stock with 83(b) election is the standard mechanism due to nominal value at that stage.
Restricted Stock Units (RSUs)
A common variation is the Restricted Stock Unit (RSU) — a promise to issue shares upon vesting rather than an immediate grant. RSUs avoid the need for purchase mechanics (no purchase price, no 83(b) election timing pressure), simplifying administration at public companies but creating different tax timing. Most public companies use RSUs for employee equity; most private startups use restricted stock for founders and options for employees due to better tax outcomes at small company values.