Vesting Agreement Template

In plain language: Identifies the company and the recipient, states the number of shares or options granted, the grant date, and the exercise price (for options) or purchase price (for restricted stock).

Common mistake: Using the incorporation date instead of the board approval date as the grant date. The grant date triggers the Section 83(b) election window and the vesting clock — using the wrong date can invalidate a timely tax election.

In plain language: States when the vesting clock starts — which may differ from the grant date — and the rate at which equity vests, typically monthly or quarterly after the cliff.

Common mistake: Setting the vesting commencement date to the grant date without confirming the recipient's actual start date. If a co-founder joined six months before the grant, the schedule should back-date to the true start date — failing to do so gives them a windfall cliff payment.

In plain language: Defines the minimum service period before any equity vests, and the amount that vests in a single tranche on the cliff date.

Common mistake: Omitting what happens if the company terminates the recipient one day before the cliff. Without explicit language, courts may imply entitlement in jurisdictions that recognize good-faith obligations in employment relationships.

In plain language: For agreements where some or all vesting is tied to achievement of specific company or individual milestones rather than the passage of time alone.

Common mistake: Defining milestones too vaguely — 'successful product launch' or 'strong company performance' gives the board subjective discretion that courts may override. Milestones must be objectively measurable to be enforceable.

In plain language: Specifies whether and how unvested equity accelerates upon a change of control, and whether a subsequent termination is required as a second condition.

Common mistake: Granting full single-trigger acceleration to all employees. Acquirers typically price single-trigger acceleration into the purchase price reduction, effectively punishing the founders and other shareholders who are not accelerating.

In plain language: States that unvested shares are automatically forfeited or subject to company repurchase at the original price upon the recipient's departure, defining what triggers forfeiture and the repurchase mechanics.

Common mistake: Forgetting to define 'Continuous Service' to include approved leaves of absence. If a recipient takes medical or parental leave, an undefined term can inadvertently trigger forfeiture.

In plain language: Classifies departure scenarios and links each to different economic outcomes — particularly relevant where vested equity can also be repurchased upon bad-leaver events.

Common mistake: Applying bad-leaver mechanics to vested equity without explicit written consent from the recipient at signing. Courts in several jurisdictions treat forfeiture of already-vested equity as a penalty clause, which may be unenforceable without clear upfront disclosure.

In plain language: Addresses the recipient's obligation to consider and file a Section 83(b) election (US), Employment Income election (Canada), or equivalent tax event notice, and the company's withholding obligations on option exercises.

Common mistake: Assuming the recipient knows about the 83(b) election window. Founders who miss the 30-day window can face ordinary income tax on the full fair-market-value appreciation at vesting — a bill that may be impossible to pay with illiquid shares.

In plain language: Restricts the recipient from transferring, pledging, or otherwise encumbering unvested shares without board consent, and subjects any transfer to the company's right of first refusal.

Common mistake: Failing to cross-reference the company's broader stockholder agreement or shareholders' rights agreement. Inconsistent transfer restrictions across documents create ambiguity that can block future financing rounds or acquisitions.

In plain language: Specifies which jurisdiction's law governs, confirms this agreement supersedes prior representations, and requires written amendments signed by both parties.

Common mistake: Choosing a governing state with no connection to where the company operates or the recipient lives. Enforcement of repurchase rights and forfeiture provisions can differ materially between states, and a mismatch creates unpredictable outcomes.

A vesting agreement is a legally binding contract between a company and a recipient — typically a founder, employee, or advisor — that defines how equity or stock options are earned over time or upon achieving specific milestones. It specifies the cliff period, vesting schedule, acceleration triggers, and forfeiture conditions that apply if the recipient leaves before fully vesting. Without a vesting agreement, equity is typically treated as immediately owned, removing the retention incentive entirely.

The venture-backed standard for founders and employees in the US and Canada is a 4-year vesting schedule with a 1-year cliff — meaning 25% of the total grant vests on the 12-month anniversary of the vesting commencement date, and the remaining 75% vests monthly (1/48 per month) over the following 36 months. Advisor grants typically use shorter schedules of 1–2 years with a 3–6 month cliff or no cliff at all.

A cliff is the minimum period a recipient must remain in continuous service before any equity vests. In a standard 4-year/1-year schedule, no shares vest during the first 12 months. On the cliff date, 25% of the total grant vests in a single tranche. The cliff protects the company from issuing equity to someone who leaves in the first few months before demonstrating sustained contribution.

Accelerated vesting causes some or all unvested equity to vest immediately upon a triggering event rather than waiting for the scheduled dates. Single-trigger acceleration vests equity on a change of control alone. Double-trigger acceleration requires both a change of control and a subsequent involuntary termination within a defined window — typically 12–18 months. Double-trigger is the investor-preferred structure for most employees; single-trigger is sometimes negotiated for founders or C-suite executives.

If you are a US taxpayer receiving restricted stock — shares granted now but subject to vesting — filing a Section 83(b) election within 30 days of the grant date is typically highly advantageous. The election locks in your tax basis at the current (usually low) grant-date value rather than the potentially much higher fair-market value at each future vesting date. Missing the 30-day window permanently forecloses this option. Consult a tax advisor before your grant date to determine whether the election is appropriate for your situation.

The default under most vesting agreements is that unvested shares or options are immediately forfeited upon termination of continuous service for any reason. The company typically also holds a right to repurchase unvested shares at the original purchase price. Some agreements distinguish between good-leaver and bad-leaver scenarios — a good leaver may retain some additional vesting or extended exercise periods, while a bad leaver (for cause) may forfeit even vested equity in certain jurisdictions.

Yes — founder vesting is widely considered best practice and is expected by most institutional investors. Without vesting, a co-founder who leaves in Year 1 retains the same equity percentage as one who stays for five years, creating a misaligned cap table that can complicate or block future financing. Most seed and Series A term sheets require that all founders be subject to a 4-year vesting schedule as a condition of investment.

A vesting agreement governs when equity is earned — it sets the cliff, schedule, acceleration, and forfeiture terms. A stock option agreement governs the mechanics of exercising the right to purchase shares at a fixed price — it sets the exercise price, option term, and exercise window. Many equity grants combine both in a single document or reference a stock option plan that incorporates vesting terms by reference. Either way, both sets of provisions must be in place before a grant is complete.

Vesting agreements are generally enforceable in the US, Canada, the UK, and the EU when properly drafted and executed. However, enforceability of specific provisions — particularly bad-leaver forfeiture of vested equity and post-departure restrictions — varies materially by jurisdiction. In some EU member states, forfeiture of already-vested equity may be treated as an unenforceable penalty clause. Legal review by counsel in the recipient's jurisdiction of employment is advisable for any grant with material value.

For straightforward time-based grants to employees in a single jurisdiction with standard 4-year/1-year terms, a high-quality template reviewed by a startup attorney is usually sufficient. Engage counsel when the grant involves material equity to a co-founder, complex performance milestones, executives with negotiated acceleration, cross-border recipients, or any situation where the value of the grant exceeds $50,000. A 1–2 hour review typically costs $400–$800 and is inexpensive relative to the disputes it prevents.