Vesting clause: earning founder shares over time

Sample clause

a founders agreement for Moonah Labs Pty Ltd, a fictional Hobart climate software company where each of two founders holds 4,800,000 ordinary shares

7. Founder Vesting 7.1 The 4,800,000 Shares held by each Founder are Vesting Shares, subject to this clause from 1 March 2027 (the Vesting Start Date). 7.2 No Vesting Shares vest before the first anniversary of the Vesting Start Date, when 1,200,000 vest. 7.3 After the first anniversary, 100,000 Vesting Shares vest on the first day of each month, so that all Vesting Shares have vested by the fourth anniversary. 7.4 Vesting stops on the date a Founder ceases to provide services to the Company. 7.5 The Company may, within 90 days after that date, buy back or nominate a buyer for all unvested Shares of the departing Founder at the lower of their issue price and Fair Value, subject to the Corporations Act. 7.6 If a Sale of the Company completes and the Founder's services are ended without cause within 12 months afterwards, all remaining Vesting Shares vest immediately.

Sample wording, not legal advice.

Variants

What to negotiate

• Length and cliff

  Four years with a one year cliff is the familiar default, drawn from US venture practice and common in Australia. Founders who have already built the product ask for a shorter schedule or credit for past work. Investors resist a short schedule, because the point of vesting is to keep the team together through the period their money is being spent.

• Acceleration

  Single trigger acceleration vests everything on a sale, which founders like and buyers dislike, since the team may leave with full value. Double trigger acceleration vests on a sale only if the founder is then dismissed without cause, which is the more common compromise. Partial acceleration, such as twelve extra months of vesting, is also used.

• Buy back mechanics and price

  An Australian company cannot simply cancel a founder's shares. Unvested shares are usually bought back under the Corporations Act procedures, transferred to a nominee, or held on trust until they vest. Founders negotiate the price, commonly the lower of issue price and fair value for unvested shares, and how long the company has to act.

• Tax treatment

  Vesting can change when tax arises. Employees acquiring interests under an employee share scheme may qualify for Australian start up concessions, and US founders often make a section 83(b) election within 30 days of receiving restricted shares. The structure should be checked with a tax adviser before signing, because it changes the result.

The risk of leaving it out

Without vesting, a founder who leaves early keeps every share while the remaining founders do the work that builds their value. Investors see that as a risk to the company they are funding, so a missing vesting clause often surfaces at due diligence and is imposed then, on terms the founders have far less room to negotiate.

The schedule for one founder

Using the sample figures for a founder with 4,800,000 Vesting Shares: at 11 months nothing has vested; at 12 months 1,200,000 shares vest, 25 per cent; at 24 months 2,400,000 have vested, 50 per cent; at 36 months 3,600,000, 75 per cent; and at 48 months all 4,800,000. Each month after the cliff adds 100,000 shares, about 2.08 per cent of the total. A founder leaving at month 30 would hold 3,000,000 vested shares and 1,800,000 unvested shares subject to buy back.

How vesting is structured in Australia

Australian startups use two main structures. Founders usually receive ordinary shares at incorporation, with vesting enforced by a right for the company or a nominee to buy back unvested shares when a founder leaves. Employees more often receive options or rights under an employee share scheme, which vest before they can be exercised. The Corporations Act regulates share buy backs and employee share scheme offers, and the tax outcome under the ATO's rules can differ between the two, so the structure matters as much as the schedule.

Where it sits in a generated document

A generated founders or shareholders agreement carries vesting as a numbered clause with the cliff, monthly instalments and acceleration as sub clauses, and the leaver clause can refer back to it by number. Share numbers and dates are written in as content. The document does not cite the Corporations Act or tax rules, so buy back and tax statements in a draft need to be checked.

Documents that carry this clause

Founders agreement templateTwo people in Fremantle are building a tide and swell planning app and have not registered a company yet. There are no shares to issue, so this agreement fixes the split, records why it is 55/45 while the memory is fresh, and turns itself into shares on the day the company exists.Shareholders agreement templateA veterinary diagnostics company has just taken $1.5 million from one seed fund. The founders keep 80 percent between them, so the whole agreement turns on a single number: the 75 percent consent threshold that puts the investor on one side of every decision that matters.

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