Does a Restricted Stock Sale require Amendment to the Articles of Incorporation?

First, given the tax ramifications of owning stock, especially restricted stock, in an S corporation, all else being equal I support your decision to change from an S-corp.

Second, I assume you do not actually intend to "sell" the stock to the key employee. This would require the employee to pay cash into the company (or take a loan, which can also get complicated) and then be subject to repurchase rights in accordance with a vesting schedule.

Third, I highly recommend that you not look at this issuance as a one-off. Assuming your company is on a good trajectory, you will likely want to do this again, and consistency and efficiency are big virtues.

So, the best course is to establish an omnibus stock plan. It is typical for the Board of Directors of a normal C corporation to establish an equity plan under which the company may issue one or more of incentive stock options, non-qualified stock options and restricted stock. Assuming you have the shares as you suggest and convert, the Board can adopt a plan, and then you can issue restricted stock to the key employee with a vesting schedule, which would typically be over a 4-year period, with the first installment vesting at the end of the first year, and subsequent vesting either annual or quarterly thereafter.

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