A restricted stock purchase agreement is a legal document that outlines the terms and conditions under which an individual, typically an employee or contractor, can purchase shares of a company’s stock at a discounted price. These shares are often subject to restrictions, such as a vesting period, which prevents the holder from selling or transferring them for a certain amount of time.
Key Components of a Restricted Stock Purchase Agreement
A well-structured restricted stock purchase agreement should include the following essential elements:
1. Parties
Identify the parties involved: Clearly state the names and addresses of the company and the individual who is purchasing the restricted stock.
2. Purchase Price and Terms
Specify the purchase price: Indicate the price per share at which the individual can purchase the restricted stock. This price is typically lower than the market value.
Outline the payment terms: Determine how the purchase price will be paid, such as a lump sum payment or installments.
3. Number of Shares
Define the number of shares being purchased. This information should be specific and unambiguous.
4. Vesting Schedule
Establish the vesting period: Specify the length of time that the individual must wait before they can exercise their right to purchase the restricted stock.
Determine the vesting schedule: Indicate how the shares will vest over time, such as a cliff vesting or a gradual vesting.
5. Restrictions on Transfer
Impose transfer restrictions: Outline the limitations on the individual’s ability to sell or transfer the restricted stock during the vesting period or after vesting.
6. Tax Implications
Address tax consequences: Provide information about the tax implications of purchasing and holding restricted stock. This may include discussing ordinary income taxation upon vesting or capital gains taxation upon sale.
7. Governing Law and Dispute Resolution
Specify the governing law: Indicate the jurisdiction that will govern the agreement.
Choose a dispute resolution mechanism: Determine how any disputes arising from the agreement will be resolved, such as through arbitration or litigation.
8. Representations and Warranties
Include representations and warranties: Require the company and the individual to make certain representations and warranties about their respective circumstances and the accuracy of the information provided in the agreement.
9. Entire Agreement
State the entire agreement: Clearly state that the agreement constitutes the entire understanding between the parties and supersedes any prior or contemporaneous communications.
10. Severability
Include a severability clause: Specify that if any provision of the agreement is found to be invalid or unenforceable, the remaining provisions will remain in full force and effect.
11. Notices
Provide notice provisions: Outline how notices will be given between the parties, such as by email or certified mail.
12. Execution
Require signatures: Ensure that both the company and the individual sign the agreement to make it legally binding.
Additional Considerations
When drafting a restricted stock purchase agreement, it is important to consider the following factors:
Company-specific policies: Ensure that the agreement aligns with the company’s overall compensation and equity policies.
Applicable laws and regulations: Comply with all relevant laws and regulations, including securities laws and tax laws.
Negotiation and compromise: Be prepared to negotiate and compromise on the terms of the agreement to reach a mutually satisfactory outcome.
Professional Guidance
It is highly recommended to consult with an attorney experienced in corporate law and employee benefits to ensure that the restricted stock purchase agreement is properly drafted and complies with all applicable laws.
