As a startup founder, you’ve learned that you need to vest founders’ stock and you’ve learned that you need to decide now just how much ownership each founder is going to have in your new company. You’ve also gained a general understanding of what vesting is – the granting of full ownership rights over time. But how exactly is that accomplished? What is the mechanism that makes this vesting thing happen?
Oftentimes, vesting is accomplished through a Stock Repurchase Agreement within a corporation’s Shareholder Agreement. This gives the corporation the right to repurchase a founder’s stock at a particular price in the event that the founder leaves the company. Other times, there is simple language in a Shareholder Agreement that states that a certain percentage of the founder’s shares vest over a particular time schedule and that if the founder is terminated, the founder’s unvested (at that time) shares will return to unissued status.
In the next post in this series, I will discuss common time schedules used for vesting founders’ stock. Stay tuned.
