Several newbie questions for restricted stocks...
- Is it common for seed fund to invest in restricted stock?
- Is it common to issue restricted stock to cofounder?
- Is it common to turn option to restricted stock?
There is nothing wrong with restricted stocks -- for tax purposes there may actually be an advantage if I understand the tax code correctly (I'm not a tax expert).
For co-founder, I would imagine that the most common place is that founder stocks are issues, but with a buy-back-clause.
Basically, the company has to make sure that they can reacquire any shares issued to founders or employees who leave early -- options do that with vesting cliffs, restricted stock does that by forfeiting if you do not fulfill the restriction.
I would however find it odd if a Seed Fund would be willing to invest money into restricted stocks -- typically they would hold a conversion note or similar until there is a Series A funding which would price the stock, and then the conversion note would be converted into actual stock (not restricted).
As to point 3 -- I'm not sure if you mean granting restricted stock instead of options, or if you literally mean as you say "options which vest, and then convert into restricted shares" -- The latter is NOT common. The principle should be that there is a period where you "earn the stock", and while you earn it you either hold an option or you hold restricted stock -- but once you have earned it, i.e. you have fulfilled the conditions in the option (such as remaining employed during the full vesting period), then you have the right to convert it into unrestricted stock. Same for restricted stock, once the restriction have been fulfilled (i.e. a waiting period, or an event or whatever the restriction is set to be) then the restriction falls away, and the stock becomes unrestricted -- either way, the end result should be that if everybody plays nice, then the end result is unrestricted stock.