Shares granted immediately but subject to vesting restrictions. If the recipient leaves before vesting, unvested shares are forfeited or repurchased. Common for founders at incorporation. Eligible for the 83(b) election.
RSA (restricted stock award)
noun — A grant of actual company shares to a founder or employee, subject to a vesting schedule enforced by a company repurchase right. The recipient receives shares immediately but the company retains the right to repurchase unvested shares at the original price if the recipient leaves before fully vesting. Eligible for an 83(b) election under Section 83 of the Internal Revenue Code. Distinguished from RSUs (promises to deliver shares later) and stock options (rights to purchase shares later).
Why it matters
Restricted stock awards are the standard way founders receive their equity at incorporation. Unlike stock options, which give you the right to buy shares later, an RSA gives you actual shares right away, subject to a repurchase right that lapses as you vest. The critical advantage for founders is that RSAs can be paired with an 83(b) election, which lets you pay taxes on the shares at their current value (nearly zero at incorporation) rather than their potentially much higher value at each vesting date.
Missing the 83(b) filing deadline can cost founders hundreds of thousands of dollars in unnecessary taxes. The clock starts the moment the RSA is signed — not when shares vest, not when the company raises money. Thirty calendar days from the grant date is the hard deadline, and there are no extensions.
RSAs also provide the company with meaningful protection. The repurchase right ensures that a co-founder who leaves in the first year doesn't walk away with years' worth of vested equity. This cap table cleanliness is essential for future fundraising, as investors carefully scrutinize the ownership of departed founders. See our piece on dead equity for more on this.
How it works
When a founder receives an RSA, they purchase shares at a nominal price (often $0.0001 per share) and sign a restricted stock purchase agreement. The agreement gives the company the right to repurchase unvested shares at the original purchase price if the founder leaves. As the founder vests, the repurchase right lapses.
A typical vesting schedule is four years with a one-year cliff. For example, a founder who receives 4 million shares starts with all 4 million shares in their name, but 100% are subject to repurchase. After the one-year cliff, 25% (1 million shares) are fully vested, and the rest vest monthly over the remaining three years. If the founder leaves after 18 months, they keep 1.5 million vested shares and the company repurchases the remaining 2.5 million shares at the original price.
The 83(b) election must be filed with the IRS within 30 days of receiving the RSA. By filing, the founder pays tax on the entire grant at the current fair market value (essentially zero for a newly formed company). Without the 83(b) election, each vesting event triggers ordinary income tax based on the shares' current fair market value, which could be substantial if the company has grown. After filing an 83(b) and holding shares for more than one year, all appreciation qualifies for long-term capital gains treatment.
| Feature | RSA | RSU | Stock option |
|---|---|---|---|
| Shares issued when | At grant (immediately) | At vesting (future) | At exercise (future) |
| 83(b) eligible | Yes | No | Only with early exercise |
| Cost to recipient | Nominal purchase price | None | Strike price at exercise |
| Typical use | Founders at incorporation | Public/late-stage employees | Post-formation employees |
History and origin
The restricted stock award in its modern form is a product of Section 83 of the Internal Revenue Code, added by the Tax Reform Act of 1969. Before Section 83, the taxation of property (including stock) received for services was inconsistent and led to various tax planning arrangements. Section 83 clarified that property received for services is taxable at fair market value when the restrictions lapse, unless an 83(b) election is timely filed.
Silicon Valley attorneys quickly adopted the 83(b) election as a standard tool for founder equity grants in the 1970s and 1980s. By the 1990s, the restricted stock purchase agreement (RSPA) — the foundational document for RSAs — became a standard part of every C corporation incorporation package for startup founders. The pairing of RSA + 83(b) election became so universal that it is now expected as part of any properly structured startup.
Today, online legal services like Stripe Atlas, Clerky, and Carta include RSA issuance and 83(b) election filing as part of their standard incorporation workflows. The automation of this process has reduced the risk of founders missing the critical 30-day deadline, though founders who incorporate without legal services still miss the filing with surprising frequency.
Frequently asked questions
What is a restricted stock award (RSA)?
A restricted stock award (RSA) is an immediate grant of actual company shares subject to vesting restrictions enforced by a company repurchase right. If the recipient leaves before fully vesting, the company can repurchase unvested shares at the original purchase price. RSAs are the standard equity instrument for startup founders at incorporation.
What is the difference between an RSA and an RSU?
An RSA (Restricted Stock Award) grants actual shares immediately, subject to a repurchase right. An RSU (Restricted Stock Unit) is a promise to deliver shares in the future when vesting conditions are met — no shares exist yet. RSAs are eligible for the 83(b) election; RSUs are not, because no property has been transferred yet. RSAs are common for early-stage founders; RSUs are common at large public companies.
Why should founders file an 83(b) election with their RSA?
Filing an 83(b) election within 30 days of receiving an RSA allows the founder to pay income tax on the shares at their current fair market value (nearly zero at incorporation) rather than at each vesting date when the value may be much higher. This converts future appreciation to capital gains rather than ordinary income. Missing the deadline cannot be corrected and can result in very large tax bills as shares vest. Read our full guide on the 83(b) election.
How much do founders typically pay for their RSA shares?
Founders typically purchase RSA shares at par value, which is a nominal amount — often $0.0001 or $0.001 per share. At incorporation with no valuation, this is considered fair market value. Filing an 83(b) election means paying income tax on this nominal total (e.g., 1 million shares at $0.0001 = $100 in taxable income).
What happens to unvested RSA shares when a founder leaves?
When a founder with unvested RSA shares leaves the company, the company exercises its repurchase right to buy back those unvested shares at the original purchase price (the par value). The departing founder retains only the vested shares — those where the repurchase right has already lapsed. Unvested shares return to the company's authorized but unissued share pool.
Can RSA vesting be accelerated?
Yes, if the RSA agreement or employment agreement includes acceleration provisions. Single-trigger acceleration vests shares upon a change of control (acquisition). Double-trigger acceleration requires both a change of control AND a termination within a set period. Acceleration provisions must be negotiated and documented in the original RSA agreement or a separate acceleration agreement.
Is an RSA the same as restricted stock?
Yes, in startup contexts these terms are used interchangeably. "Restricted stock award" (RSA) and "restricted stock" both refer to actual shares issued immediately subject to vesting restrictions and a company repurchase right. The "award" in RSA simply reflects that the shares are awarded (granted) to the recipient, often at a nominal purchase price.
Learn more
- Types of startup equity explained
- The 83(b) election explained
- Vesting explained: cliffs, schedules, and acceleration
- Dead equity: the silent killer of startups
Related terms
- Restricted Stock
- 83(b) Election
- Vesting
- Founder Equity Split
- RSU (Restricted Stock Unit)
- Acceleration
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