Restricted Stock Purchase Agreement | IRC 83(b), DGCL 202

A restricted stock purchase agreement is a sale of shares, not a promise of shares. The recipient buys the full block on day one, pays in cash or by assigning intellectual property, and appears on the cap table immediately with voting and dividend rights. What makes the stock restricted is a repurchase option in favor of the company over every share not yet vested, exercisable at the original purchase price for a defined window after the service relationship ends. Vesting does not deliver shares. It releases them from the buyback.

That distinction separates the document from a restricted stock unit, a promise to deliver shares later that produces ordinary income at settlement with no election available, and from a stock option, where the holder owns nothing until exercise. Because restricted stock is property transferred in connection with the performance of services under section 83 of the Internal Revenue Code, the holder can elect to be taxed at purchase rather than at vesting, which is the entire reason founders use it. The agreement normally travels with a founders' agreement covering equity splits, four year vesting and IP assignment, and it is the first document a diligence lawyer asks for.

Two bodies of law govern this document at once, and both have to be satisfied. On the tax side, section 83(a) taxes property received for services when it stops being subject to a substantial risk of forfeiture, at fair market value on that date, less what the holder paid. For a founder whose company is worth nothing on day one and a great deal three years later, that default is punishing. Section 83(b) flips the timing to the date of transfer. When the purchase price equals fair market value at issuance, income recognized is zero and all later appreciation is capital gain. Cornell's Legal Information Institute publishes the statutory text of 26 U.S.C. 83 on property transferred in connection with services.

The election mechanics are unforgiving. Treas. Reg. section 1.83-2 requires a written statement filed with the IRS no later than 30 days after the date of transfer, with a copy given to the company. The IRS released Form 15620 in November 2024 as a standardized alternative to the sample language of Rev. Proc. 2012-29, and later opened online submission through an individual IRS account. Day 30 rolls to the next business day when it falls on a weekend or legal holiday under section 7503, and a mailed election gets the timely mailing rule of section 7502. Once filed, the election cannot be revoked without IRS consent, granted only for a genuine mistake of fact.

State corporate law supplies the rest. The board authorizes the issuance and fixes the consideration under provisions such as 8 Del. C. section 152, the transfer restriction is recorded as the statute prescribes, and any repurchase respects the statutory limits on distributions. Securities law applies too: the sale relies on section 4(a)(2) of the Securities Act or on Rule 701, which is why the certificate carries a legend and why the terms should match your shareholder agreement covering drag along, tag along and buy sell rights.

The classic trigger is incorporation. Two or three founders form a C corporation, buy their shares at or near par value, and put themselves on a four year schedule with a one year cliff so nobody leaves after six months holding a third of the company. The cheapest moment in the life of a company to issue equity is the week it is incorporated, and that window closes fast. Advisors are the second case, usually on a two year monthly schedule tied to a defined commitment of hours.

Existing companies reach for it when a co-founder joins late, or when an investor conditions a term sheet on founders re-vesting shares they already own outright. That second case surprises people: a founder who signs unrestricted stock back into a vesting schedule has, in most structures, received no new transfer, so a fresh election is generally unnecessary. The answer turns on how the amendment is papered, so ask a tax advisor before signing.

Early exercise of options is the edge case worth flagging. When a plan allows exercise before vesting, the shares that come out are substantially nonvested property, the same 30 day clock starts on the exercise date, and the same election applies. Companies that allow early exercise without preparing the paperwork discover the miss months later. For equity going to someone outside payroll, pair the agreement with a confidentiality and invention assignment agreement for US service providers so the intellectual property follows the shares.

• The purchase and issuance provisions state the number of shares, the price per share, and the form of consideration, with alternative wording for cash, a promissory note, or contributed intellectual property. Stock issued below par value is voidable, so the drafting tests the stated consideration against the par value in your charter.
• The vesting schedule is drafted as a release from the repurchase right rather than a grant of shares, the formulation that supports the tax analysis. Defaults cover four year monthly vesting with a twelve month cliff, plus optional single or double trigger acceleration on a change of control.
• The repurchase option prices unvested shares at the lower of original cost or fair market value, sets a 90 day exercise window running from termination of service, and names the officer who signs for the company. A buyback right with no defined window can be argued to have lapsed.
• The transfer restriction and legend language carries the notice wording required to bind a transferee, plus a right of first refusal over vested shares and a market standoff covenant for a future offering.
• The escrow and stock power clause leaves the certificate with the company secretary and attaches an assignment signed in blank, so a repurchase closes without chasing a departed holder.
• The section 83(b) package holds the completed election letter, Form 15620, the cover letter to the service center, and an acknowledgment that the holder carries the filing obligation. The company cannot make this election on someone else's behalf.

Delaware governs most venture backed corporations wherever the team sits. Under 8 Del. C. section 202, a transfer restriction binds a holder only when noted conspicuously on the certificate or, for uncertificated shares, contained in the notice sent under section 151(f), and it must live in the charter, the bylaws, or an agreement the holder signed. Repurchases then meet section 160, which bars a corporation from buying its own shares when capital is impaired or would be impaired by the purchase. A company with no surplus can hold a buyback right it cannot lawfully exercise.

California adds a securities filing that gets missed constantly. A sale relying on the limited offering exemption of Corp. Code section 25102(f) requires a notice filed with the Department of Financial Protection and Innovation within 15 calendar days after the first sale in the state, through its electronic portal. Plans relying on section 25102(o) carry a separate 30 day notice. California is community property, so spousal consent is not optional, and Corp. Code section 500 can complicate a repurchase, which is why Delaware charters used by California based companies routinely zero out the preferential amounts for buybacks from departing service providers.

New York corporations should note BCL section 513, permitting a purchase of a company's own shares only out of surplus, and BCL section 508(d), requiring the restriction to appear on the certificate. Founders of privately held New York corporations also live with BCL section 630, which makes the ten largest shareholders personally liable for unpaid wages.

Texas validates buyback and first refusal restrictions in Tex. Bus. Orgs. Code section 21.211, but section 21.213 makes them specifically enforceable only when reasonable and noted conspicuously on the certificate or in the section 3.205 notice for uncertificated shares. Texas is community property as well, so the consent page matters as much as in California, and a prenuptial agreement addressing separate property and business interests often sits behind the equity paperwork. Washington follows the same pattern under RCW 23B.06.270 and RCW 26.16.030.

You start with the issuer and its state of incorporation, which sets the statutory citations, the legend wording, and the repurchase limits used throughout. Next comes the holder: name, role, whether the person is an employee, a director, or an advisor, and the state of residence, which controls the spousal consent page and any state securities notice. The share block follows, with the number of shares, the price, and the form of payment, checked against the par value in your charter.

Vesting comes next. You choose the total period, the cliff, the measurement frequency, and whether acceleration applies on a single or double trigger, and the repurchase clause updates to match. Last is the tax package: you enter the transfer date, and the document produces the election letter and the completed form with the 30 day deadline printed on the cover instructions. Everything downloads in Word and PDF, alongside the rest of the business contracts and incorporation templates you need at closing.

The deadline miss is the expensive one, and it is almost always a calendaring failure rather than a legal misunderstanding. People count 30 days from the board meeting, from the day the certificate arrives, or from month end, when the clock runs from the transfer date under Treas. Reg. section 1.83-3(a). Courts have refused to excuse late filings and the IRS grants no extensions. The second recurring error is a purchase price set below fair market value on a hunch. That spread is ordinary compensation income on the election, reportable and subject to withholding, and the company inherits a payroll tax problem it must disclose in diligence.

Sloppy signature packages cause the rest. A stock power left unsigned turns a clean buyback into a lawsuit. A missing spousal consent in a community property state leaves a former spouse with a claim on shares the company thought it controlled. Founders who pay for stock with a promise to contribute code, with no assignment attached, hand an acquirer an easy reason to hold back part of the price. And a restriction recorded the wrong way leaves the repurchase right unenforceable against the one person it had to bind.