What is Restricted Stock Agreement Drafting?
A restricted stock agreement is a legal contract between a recipient, such as a founder and employee, and a company. It outlines the terms for selling or granting company stocks under certain conditions.
If you need to draft a restricted stock agreement, read the rest of this article for key terms to include in it, tips for drafting it professionally, and how a qualified lawyer can assist you with the drafting process to ensure you protect your interests.
What are Core Components in a Restricted Stock Agreement?
A restricted stock agreement usually contains the following key terms for clarity between parties:
- Grant date. State the date on which the shares are awarded.
- Share count. Be clear about the exact number of shares issued to the recipient.
- Vesting schedule. Explain if the shares don’t immediately belong to the recipient but are earned over time. Mention the vesting period. If they will be earned after hitting specific conditions, include these.
- Transfer restrictions. These can include agreeing not to sell, pledge, or transfer shares that are unvested on the open market for a specific duration.
- Forfeiture. Explain what happens if the recipient leaves the company before the shares vest and if they are returned to the company.
- Right of first refusal. This clause allows the company to purchase the shares back if the recipient sells them to a third party, protecting their interests.
What are Drafting Tips for a Restricted Stock Agreement?
When drafting the terms in a restricted stock agreement, it’s important to consider additional information that will prevent challenges or disputes between parties.
Define the Shares
Make it clear exactly what shares are involved, such as their number, class, and type. Mention the agreed-on purchase price per share so that you can reduce your risk of disputes.
Set the Vesting Schedule
Establish a clear timeline or milestone-based schedule for when the holder will earn stock ownership. State when the company’s rights to buy back or forfeit the shares expire.
Include a Repurchase Option
The company will want to have the right to buy back any unvested shares if the employee exits the company prior to their vesting being complete.
Confirm Transfer Restrictions
You want to provide transfer restrictions so that you prevent prohibited activities, such as selling or transferring unvested shares. State that clear, written consent is required by the company board beforehand so that the company’s interests are safeguarded.
Be Clear About Termination
Your agreement must explain what will happen to unvested and vested shares when the recipient exits the agreement, such as if they resign from the company. You should consider different circumstances, such as termination with and without cause.
Explain Shareholder Rights
Mention what rights are attached to the shares, such as voting rights and rights to participate in distributions, depending on the shares and arrangement.
Consider Tax Responsibilities
Don’t forget to state that the recipient is responsible to fulfill tax obligations that arise from issuing the stock.
Stay Compliant
The issuing and transferring of shares must be compliant with all the relevant securities laws and regulatory requirements. Since this can be tricky if you don’t have experience with it, a qualified lawyer can assist you. This is especially important because requirements vary in different jurisdictions.
How Does a Lawyer Help You Draft a Restricted Stock Agreement?
Since it’s important for a restricted stock agreement to be aligned with your specific jurisdiction and company circumstances, it’s worth your time to consult a qualified lawyer who can help you with drafting it.
To give you some idea of what a lawyer can do during the drafting of your restricted stock agreement, here’s a rundown of their common tasks:
- Selecting appropriate provisions and terms. A lawyer will outline all important provisions that are required to appropriately reflect the company’s stock issuance.
- Drafting vesting provisions. They’ll establish the vesting schedule, milestones to meet, and what conditions employees must meet to gain share ownership.
- Setting repurchase rights. For clarity, a lawyer will include provisions for the company to buy back unvested shares if the recipient exits the company or conditions aren’t met.
- Clarifying transfer restrictions. To protect the company’s interests, a lawyer will specify when and how the holder can sell or transfer their shares.
- Including tax provisions. They’ll identify relevant tax considerations and can collaborate with tax professionals to protect your financial interests.
- Ensuring securities law compliance. They’ll review all applicable securities laws and exemptions to ensure that the agreement is legally compliant.
- Aligning the agreement with company documents. They’ll assess if the agreement is aligned and consistent with the company’s articles, shareholder agreements, and other legal documents to prevent confusion or contradictions.
- Reviewing the restricted stock agreement. If you’ve drafted your agreement, a lawyer can help you by providing a thorough review of it so that you don’t have to worry about it lacking any important information.
Where to Find a Lawyer for Restricted Stock Agreement Drafting
Now that you’ve decided to hire a lawyer to draft your restricted stock agreement, you might be unsure of where to find one. By using an online legal platform such as ContractsCounsel, you’ll access a network of lawyers who can assist you with your contract-drafting requirements.
ContractsCounsel is one of the largest online legal marketplaces. It enables you to connect with a curated network of lawyers who have been vetted on the platform.
To ask a lawyer to draft your restricted stock agreement, follow these steps:
- Go to the ContractsCounsel marketplace.
- Select ‘One-time project’ and ‘Create or update contract.’
- Post your project for free. Include some details of what you require so you’ll match with suitable lawyers.
- Wait for bids. You’ll receive multiple bids from lawyers directly on the platform.
- Review the platform’s lawyer data. This information includes the lawyers’ location, field of expertise, years of experience, credentials, and client ratings.
- Select a lawyer and hire them to draft your restricted stock agreement for a flat fee.
