Chapter 38
RESTRICTED STOCK PLAN
LEARNING OBJECTIVES:
A. Discuss key factors related to restricted stock plans
REVIEW:
This chapter covers restricted stock compensation plans. The focus on when
such a plan would be used is for employee retention and discouraging certain
types of employee conduct. Advantages and disadvantages are discussed, with
special mention of S corporation considerations. Following this, there is a section
about what can be accomplished with restrictions on stock that highlights
employee retention, discouraging misconduct, and incentives. The section on tax
implications targets the Section 83 election and substantial vesting requirements.
Following a reference for learning more, there is a short question and answer
section.
CHAPTER OUTLINE:
A.
B.
C.
D.
E.
F.
G.
H.
I.
What Is It?
When Is It Indicated?
Advantages
Disadvantages
What Can Be Accomplished With Restrictions On Stock
1. Employee Retention
2. Discouraging Misconduct
3. Incentives
Tax Implications
Where Can I Find Out More About It?
Questions And Answers
Chapter Endnotes
1
Chapter 38
FEATURED TOPICS:
Restricted stock plans
CFP® CERTIFICATION EXAMINATION TOPIC:
Topic 32: Stock Plans
A. Types and basic provisions
2) Restricted stock
COMPETENCY:
Upon completion of this chapter, the student should be able to:
1. Discuss key factors related to restricted stock plans
KEY WORDS:
restricted stock, Section 83(b) election, employee retention, substantial vesting,
forfeiture, incentives, non-lapse restriction
DISCUSSION:
1. Discuss employer objectives that can be met through a restricted stock
plan.
2. Discuss advantages and disadvantages to making a Section 83(b)
election.
QUESTIONS:
1. At what point does an employer normally receive a tax deduction for a
restricted stock plan?
a.
b.
c.
d.
the year in which the property becomes substantially vested
two years following a Section 83(b) election
when the employee purchases stock under the plan
when the employee sells stock purchased under the plan
Chapter 38, pp. 299-300
Chapter 38
2. Which one of the following must be avoided by S corporations using a
restricted stock plan?
a.
b.
c.
d.
the possibility of a Section 83(b) election
creation of a second class of stock
granting of an equity interest in the company
creation of new shareholders of the company
Chapter 38, p. 300
3. Which one of the following may be accomplished through a Section 83(b)
election?
a. the employer gets a tax deduction if the property subsequently increased
in value in the hands of the employee
b. subsequent appreciation of the property is taxed as ordinary income
c. income is recognized when the employee receives the restricted property
d. income is recognized at the point where the employee becomes
substantially vested in the restricted property
Chapter 38, pp. 301-02
4. Which of the following implications of federal securities laws may apply to
restricted stock?
(1) no federal securities laws ever apply
(2) if stock is issued without cost, federal securities registrations is not
generally required
(3) securities laws may apply to stock issued to executives
(4) the private placement securities exemption may apply
a.
b.
c.
d.
(1) only
(2) and (3) only
(3) and (4) only
(2) (3) and (4) only
Chapter 38, p. 303
ANSWERS:
1. a
Chapter 38
2. b
3. c
4. d