Guide
Founder vesting explained: cliff, schedule and what happens if someone leaves
Vesting means shares are earned over time instead of owned on day one. It is the simplest protection against a co-founder who leaves early with half the company.
Not legal, tax or financial advice. Rules differ by country and platform menus change often. Use this to organise your thinking and check anything important with a professional or the platform's current help pages.
Vesting in one paragraph
With vesting, each founder's shares are released gradually. If someone leaves early, they keep only the part that has vested and the rest goes back to the company or the remaining founders. A common setup is four years with a one-year cliff.
How a 4-year schedule with a 1-year cliff works
- Cliff: nothing vests for the first 12 months. If someone leaves before that, they keep no shares. At month 12, 25% vests at once.
- Then monthly: the other 75% vests in equal parts over the next 36 months.
- Example: a founder with 40% leaves after 18 months. 18 of 48 months have vested, so they keep 37.5% of their 40%, which is 15% of the company.
After the cliff, each month adds 1/48 of the grant. Here is the same schedule for a 40% stake:
| Month | Vested | Of a 40% stake |
|---|---|---|
| 11 | 0% | 0% |
| 12 (cliff) | 25% | 10% |
| 24 | 50% | 20% |
| 36 | 75% | 30% |
| 48 | 100% | 40% |
Two founders, 50/50: a worked example
Ana and Ben each hold 50% on a four-year schedule with a one-year cliff, both starting on the same day.
- Ben leaves at month 8. He is before the cliff, so nothing has vested. His 50% goes back to the company or to Ana, as your agreement says.
- Ben leaves at month 30. 25% vested at the cliff, plus 18 more months at 1/48 each (37.5%). Total vested is 62.5%, so Ben keeps 31.25% of the company. The other 18.75% is unvested and goes back.
- No vesting at all. Ben leaves at month 8 and still owns 50%. This is the case vesting exists to prevent.
Choices worth discussing
- Start date. Count from when the person really started, not only from signing, if work began earlier.
- Credit for past work. Some teams vest part of the shares on day one for work already done. Some tools let you set the start date earlier instead: Stripe Atlas, for example, allows a vesting start up to six months before incorporation.
- Leaver types. Decide what happens if someone is dismissed, quits or cannot continue for health reasons.
- Sale of the company. Some agreements speed up vesting if the company is sold.
- Where to write it. In a company, in the shareholder agreement. Without a company, in your founders agreement, so the starting split has a time dimension.
If you pay US tax: the 83(b) deadline
In the US, shares that vest over time have special tax treatment, and founders can choose a Section 83(b) election. The IRS form says it must be filed no later than 30 days after the shares are transferred to you. That clock starts when the shares are issued, not when you notice. Ask a tax adviser before you receive the shares.
Common mistakes
- Splitting 50/50 on day one with no vesting, then one person stops working.
- Agreeing it by chat and never writing it down.
- Forgetting access: a leaver's shares can be settled, but their logins also need handing over. Use the handover checklist.
Start with the startup equity calculator to get a first split, then add vesting on top.
Do it with AI
Draft your vesting clause
Give the AI your numbers and get a plain-English clause to review with a lawyer.
Act as a startup advisor, not a lawyer. Draft a plain-English vesting clause for [NUMBER] co-founders of [PROJECT]. Shares: [NAME: PERCENT, ...]. Start dates: [DATES]. Schedule I want: [e.g. 4 years, 1-year cliff, monthly after]. Country: [COUNTRY]. Company: [YES/NO]. Cover: what vests when, what happens if someone quits, is dismissed or cannot continue, whether vesting speeds up if the company is sold, and who gets the unvested shares. List the three points a lawyer must check.
Frequently asked questions
What is founder vesting?
A schedule that releases a founder's shares gradually. If they leave early, they keep only what has vested.
What does a one-year cliff mean?
No shares vest during the first year. At the one-year mark a first block, usually 25%, vests at once.
Is four years standard for vesting?
It is the most common choice for startups, but you can choose a shorter schedule for a small side project.
Do co-founders need vesting if there is no company?
It still helps. Write the schedule in your founders agreement so the shares you agreed are earned over time.
What happens to unvested shares when a founder leaves?
That depends on your documents. Usually they return to the company or are bought back by it, which is why the agreement must say who gets them and at what price.
Does a founder who leaves keep the vested shares?
Yes, unless your agreement says otherwise for specific cases such as a serious breach. Spell the leaver types out before anyone leaves.
What is the 83(b) election?
A US tax election for shares that vest over time. The IRS form gives a 30-day deadline from the date the shares are transferred. Check it with a tax adviser.
Sources
- Stripe Atlas: founder equity terms. Standard four-year period, one-year cliff, monthly vesting, optional earlier start date.
- IRS Form 15620: Section 83(b) election. The 30-day filing deadline.
Related
- Startup equity calculator
- Founders agreement template
- Side project with a partner and no company
- Co-founder removed me from GitHub, the domain or ads
- All co-founder guides
Keep each founder's agreed share on record and let every founder confirm it.