Restricted Stock

Restricted Stock is is also known as Restricted Securities or Letter Stock. In simple terms it can be said as owning a share in a company with some restrictions laid on it. Restricted Stock  never allow full transference until certain condition have been met. Only when the conditions are satisfied, the person holding the award allow full transference. Some company provide guarantee for this stock in form of compensation form. During vesting period the condition guaranteed for Restriction Stock help them in transferring the shares periodically. Another type of restriction is based on condition of performance such as financial targets or company reaching earnings per share goal.

Valuation Of Restricted Stock


Let us move on to certain factors influencing the value of Restricted Stock. In valuating the Restricted Stock the first and foremost factor that comes into one's mind is nature of the Restriction Stock and length of it. Secondly transferability of the Letter Stock Should be taken into account. Next factor influencing the valuation of the Restriction Securities is the underlying financial strength of the company. Fourthly one must be conscious of the rights of the Letter stock such as liquidation damage and registration rights. Fifth factor to be considered in valuating the Restricted Stock is the ability to borrow shares of the company as it is mostly essential for the purpose of hedging. Finally the availability of publicly traded option contract on the issued stocks should be considered as they influence the value of Restriction Stock.

In comparison with Stock Option, it motivate employees and it becomes more prominent among employees particularly for executives.

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