What Does It Mean To Vest Your Shares?

By: Doug Bend

Vesting of shares means that the shareholder has to earn their shares over time by staying with the company in some capacity.

If a shareholder leaves the company and owns unvested shares, then the corporation has the option to repurchase the unvested shares typically at the original purchase price.

For example, founders of start-ups typically vest their shares over four years with a one year “cliff.”

If a founder leaves the company before they hit the first year anniversary of their stock purchase agreement, the company has the option to repurchase 100% of their shares.

On the first anniversary of the stock purchase agreement, the founder hits the “cliff” and vests 25% of their shares.

Each month thereafter the founder vests 1/48 of their shares until they are fully vested on the fourth anniversary of their stock purchase agreement.

Issuing shares on a vesting schedule is optional, but it is often a good idea so you have a game plan in place if the shareholder leaves the company in the first few years of purchasing their stock.

This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction. Bend Law Group, PC expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.