There are many businesses that offer vested common stock, but you might not know what this means. If you are offered vested common stock, you need to know what this is and how it works. There are a few other factors that you need to know about when looking at vested stock including the benefits and the tax implications.

What Is Vested Stock?

Before you can look further, you need to know what vested stock is. Vested stock is a form of compensation offered to employees who are eligible. To become eligible, you will need to work for the company for a set number of years. The most common vesting period will be 5 years, but some companies have a vesting period of 4 years or more.

An example of the vesting period will be a 1000 share vest over a 5-year vesting period. In this situation, you will only have access to all 1000 shares at the end of 5 years. Some companies will award you with 200 shares after 1-year of working at the company and 200 shares for each year after until you have all 1000 shares.

The Vesting Schedule

If you are offered vested shares, you need to know what the vesting schedule is. This will vary from one company to another and you need to take the time to read this. The most common schedule is to provide shares after a set number of years with the company.

The schedule will tell you the number of shares that you vest into each month, quarter or year. This will also outline any accelerated vesting that your company offers. Accelerated vesting is not offered by all companies, but when it is it will often be linked to job-based deliverables. This will include meeting certain deliverable dates or as a reward for significant results.

It is possible to have a variety of vesting schedules that you can choose from. You will need to take the time to determine what you are vesting into and when you will receive your vested shares. This will help you better understand the reward.

The Benefits Of Vested Shares

Vested shares are beneficial to both the employee and the company. When vested shares are used, the company does not have to pay as much in cash compensation. This will reduce the drain on the cash flow of the business.

As an employee, you are getting the potential windfall of the value and dividends of the shares. You will also own a small piece of the business that you work for. These shares will remain with you even if you leave the company. However, you will only be able to retain the shares if you see through the entire vesting period.

Taxes On Vested Shares

With vested shares being a form of compensation, you will have to pay tax. The tax will vary depending on the type of vested shares you get. If you have vested in an option, you will only be taxed when the stock is sold. If you have vested into a stock award, you are taxed on the compensation income represented by the shares.

Vested shares are something that a lot of companies offer as a form of compensation. To get these shares, you will need to see through the vesting period which varies from one company to another.