Founder vesting: what the schedule does not tell you

Define the mechanism, not just the timeline

A four-year schedule with a one-year cliff is a commercial convention, not a legal requirement. The parties can negotiate a different structure. What matters is whether vesting operates through transfer rights, options, conversion or another properly documented mechanism.

Specify the start date, credited prior service, vesting frequency, treatment of partial periods and any acceleration. Distinguish a sale of the company from termination after a sale. A promise of accelerated vesting can mean very different things depending on whether one event or two are required.

Connect vesting to leaver provisions

Example: A founder has completed eighteen months of an agreed schedule and then becomes unable to work because of illness. The documents should answer which shares are vested, how the departure is classified and whether any discretion applies. Leaving the answer to an undefined notion of fairness invites disagreement.

Set out notice, valuation, payment and transfer mechanics. Ensure the articles and shareholders' agreement do not contradict each other. If the company itself is expected to buy shares, company-law rules on purchases of own shares require separate attention; it is not simply an ordinary transfer to another founder.

Check tax before the deadline passes

Shares connected with employment or directorship can fall within the employment-related securities regime. Restrictions and their later removal can affect taxation. A section 431 election may be relevant, but it is not automatically beneficial or required in every situation. HMRC's guidance states that the relevant election must be made within the prescribed fourteen-day period.

Obtain advice on valuation, acquisition, restrictions and reporting before completion. Preserve signed election documents where used and do not assume a cap-table platform makes the tax decision. A vesting clause can be commercially sensible while producing an unexpected tax result if its implementation is left until later.

Your next steps

1. Write the operative transfer or option mechanism as carefully as the schedule.
2. Test illness, resignation, dismissal and sale against the leaver rules.
3. Review restricted-securities tax treatment and any election before acquisition.