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Equity Compensation 101
By Gary T. Moyer, April 11, 2000
Restricted Stock Purchase Plan
- The stock is subject to a "substantial risk of forfeiture" because the employee does not get, on "day one," the upside potential because (s)he must sell back the unvested stock to the Company at its purchase price. The employee makes a" §83(b) election" on day one, but recognizes no taxable income because there is no "bargain element" to the sale (employee paid $1 million for stock worth that).
- The employee has taxable wage income of $200,000 over each of the five years following the restricted stock purchase (as the note is forgiven when the stock vests).
- Company gets a deduction as the employee recognizes income.
- Compare results to $0 purchase price; if employee leaves in year 3; if employee leaves in year 6.
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