What do you need to know about a stock restriction agreement?

What do you need to know about a stock restriction agreement?

6. What Is a Vesting Schedule? A stock restriction agreement or SRA refers to the agreement made between a company and its founder for allotment of stock that places certain restrictions on its transfer. What Is a Stock Restriction Agreement?

Can a company refuse to allow a stock transfer?

One way to temper this potential unfairness is to combine a requirement of approval with a requirement that, should the company refuse to allow a transfer to a third party, the company or remaining owners be required to buy the shares at a price that is agreed in advance in the operating agreement or the buy-sell agreement.

What are stock transfer restrictions in closely held corporations?

To this end, owners of closely-held corporations and LLCs will often incorporate limitations on the transfer of ownership interests to third parties into either their LLC operating agreement or a buy-sell agreement . A stock transfer restriction is essentially a contract between the shareholders of the corporation or members of the LLC.

Can a company sell its stock to a third party?

Often, when an operating agreement or buy-sell agreement requires that a sale of stock to third parties be approved by the company, the agreement will also provide that if the approval is denied the company or other shareholders are required to purchase the stock at a set price.

How does a restricted stock agreement work for a company?

A typical restricted stock agreement works as follows: A founder is allocated unvested shares outright. A vesting schedule is prepared for the issuing of shares over a period of time. The company retains a right to repurchase the unvested shares for a certain amount if the founder terminates his relationship with the company.

Are there restrictions on the transfer of shares?

Restrictions on Transfer of Shares . The Restricted Stock may not be sold, exchanged, assigned, transferred, pledged, encumbered or otherwise disposed of by the Grantee, except to the Company, unless the Restricted Stock has become nonforfeitable as provided in Article II, Section 3 hereof; provided,…

How are founders paid under a stock restriction agreement?

The founders of a new company are usually compensated through cash and stock. Since most new companies do not have enough cash, they often partially pay the founders with the stock of the company issued over a certain period of time. This is typically done under a stock restriction agreement (SRA).

When do restricted stock units have to be modified?

The vesting schedule for the Restricted Stock Units awarded under this Agreement will be modified as soon as the duration of the Employee’s PLOA exceeds six (6) months.