October 14, 2026
Restricted stock is common stock issued to a founder, employee or advisor up front, subject to vesting. The person owns the shares from day one, but the company can buy back the unvested shares at the price the person paid if they leave. Recipients usually pay for their shares at fair market value, which at formation is par value: a small amount for millions of shares. Filing an 83(b) election within 30 days means later growth isn’t taxed as the shares vest.
Key takeaways
The company issues all the shares at once. The holder can vote them and is listed on the cap table. The stock purchase agreement gives the company the right to buy back unvested shares, usually at the price paid, if the holder’s service ends, and restricts transfers, usually through a right of first refusal. As the shares vest, the repurchase right lapses. See Vesting Schedule.
Not legally. “Founder stock” is a nickname, not a class of stock. It’s ordinary common stock that the founders bought as restricted stock when the company was formed, at par value, typically $0.00001 per share. What makes it feel different is timing and terms. It was bought when the shares were worth almost nothing, and founders sometimes have vesting credit for work done before formation, or acceleration terms, that later hires don’t. A new hire who asks for “founder stock” is really asking for the founders’ price, which the company can’t offer once a 409A sets a higher value (see the example below).
The exception is founders preferred stock, sometimes called Series FF, a separate class some companies issue to founders so they can sell a small number of shares in a later financing. See Founders Preferred Stock.
Usually, and Westaway’s default is that they do. Recipients buy their shares at fair market value under a restricted stock purchase agreement and file an 83(b) election. If a company instead grants restricted stock for services without payment, the value of the shares is taxable income to the recipient, at grant with an 83(b) election or as the shares vest without one.
Example: A founder buys 4,000,000 shares at $0.00001 par value and pays $40 by check or wire.
With an 83(b) election, the holder reports the shares’ value minus what they paid (zero if they paid fair market value) at issuance, and later growth is taxed when the shares are sold. Without an 83(b), each vesting date is taxed as income based on the shares’ value then. See 83(b) Election.
Once the company has raised money and has a 409A valuation, restricted stock either costs the recipient real money or creates taxable income. Options let employees pay nothing until they exercise, which is why companies usually move to options for new hires after the first round.
Example: Six months after formation, a 409A values the common stock at $0.20 a share. A new hire offered 100,000 restricted shares would have to pay $20,000 for them. If the company grants the shares for their work instead, that $20,000 of value is taxable income to the hire, and for an employee the company has to withhold on it. An option over the same 100,000 shares, with a $0.20 exercise price, costs nothing up front.
See Restricted Stock vs Stock Options.
Vested restricted stock is treated like any other common stock in the deal. Unvested shares are handled according to the agreement, including any acceleration. See Single Trigger vs Double Trigger Acceleration.
See our Stock Grant service.
