Control and Restricted Stock FAQs (2024)

FAQs

What is the difference between control and restricted stock? ›

Restricted stock rules apply because the stock is not registered with the SEC. Control stock rules apply because they're affiliate-owned shares. When this is the case, both sets of rules apply simultaneously.

The securities can be sold, subject to Rule 144 conditions, once at least 90 days have elapsed after the securities were acquired. The same six-month holding period as in Rule 144 allows non-affiliated parties to resell their securities, subject only to the current public-Information condition.

The prescribed holding period must be met. For a public company, the holding period is six months, beginning on the date a holder purchased and paid for the securities. For a company that does not have to make filings with the SEC, the holding period is one year.

Stock control, also known as inventory control, is keeping all the different products in a business within ideal minimum and maximum levels, so the business can fulfil orders without delay, while keeping stock holding costs to a minimum.

Shareholders have the right of preemption, meaning they have the first chance at buying newly issued shares of stock before the general public.

Usually, you'll lose all the RSUs that have not yet vested at the time of your resignation. They'll be forfeited back to the company, and you'll walk away with nothing for those unvested units.

Once you own a restricted stock unit, you can sell these shares subject to the same rules and conditions as any other share of stock. With a publicly traded company, you can contact your brokerage of choice and sell the shares directly.

Financial goals and personal circ*mstances

If you require immediate cash, selling your vested shares might be the best option. Evaluating long-term objectives, such as retirement planning: Your long-term financial goals, like retirement or wealth accumulation, should also factor into your decision.

A common rule of thumb is to sell restricted stock units when they vest because there is no tax benefit to holding the stock any longer. In a silo, selling RSUs as they vest often makes sense, but the decision can be complicated if you have other forms of equity, namely employee stock options.

How long does it take for restricted stock to vest? ›

Common questions about restricted stock

Your vesting schedule spans four years, and 25% of the grant vests each year.

Securities issued under Rule 701 are “restricted” meaning they cannot be traded without SEC registration, which usually does not occur until a company becomes publicly traded on a national exchange through an initial public offering (IPO), direct listing or de-SPAC transaction.

When an employee receives Restricted Stock Units, they have an interest in the company's equity, but the units have no tangible value until they vest. Once the RSUs vest, the employee can keep, sell, or transfer the shares, just like any other stock. Companies use RSUs as a form of employee compensation or bonus.

From a company's perspective, restricted stock units can help employee retention by incentivizing employees to stay with the company long-term. For employees, restricted stock units are a stake in a company's success and occasionally produce very substantial income.

In order to minimize your RSU taxes as much as possible, it's typically advisable to hold your shares for at least one year after the vesting date to qualify for long-term capital gains taxes.

Control stock gives control to the stockholder when larger and important decisions are being made. Shares with superior voting power, or vote weighting, are considered to be control stock. Control stock refers to equity shares owned by major shareholders of a publicly traded company.

RSAs and RSUs are both restricted stocks but they have many differences. An RSA is a grant which gives the employee the right to buy shares at fair market value, at no cost, or at a discount. An RSU is a grant valued in terms of company stock, but you do not actually get the shares until the restrictions lapse or vest.

A key difference in the treatment of restricted and control securities under Rule 144 is the requirement of a holding period, which is applicable only to restricted securities under Rule 144(d).

RSUs are an excellent form of compensation if you're offered them, but they also come with tax implications, as they are taxed as ordinary income as soon as they become vested. Stock options offer large potential upside as well as the choice around when to exercise and realize the taxes, if there are any.