Frequently Asked Questions

What is vesting? Can I backdate a vesting schedule?

For common stock, vesting refers to the repurchase right of the corporation in the event that a shareholder leaves the company within a certain time period. The right initially covers the entire grant, but normally after 12 months, 25% will no longer be subject to this right. This initial vesting event is called a “cliff.” In a standard stock grant after the cliff, the stock will continue to vest monthly in equal increments until the end of the vesting period (typically 4 years). At that time, the shareholder will control all of their shares outright.

Startups generally want their stock grants to be subject to vesting, especially for founders. Vesting protects against significant shareholders leaving the company early; more specifically, vesting can prevent shareholders from maintaining an ownership percentage in the startup and taking advantage of the startup’s success without having contributed to it. Vesting helps keep founders motivated to continue working on the startup. Finally, investors will typically require that all founders have the appropriate vesting schedules before they agree to make an investment.

Last updated on April 2, 2019