Questions

What are the logistics of vesting agreement before anyone is an employee?

I've been working with a co-founder for quite a while, and neither of us are actual employees of the company, we're just shareholders. We are finalizing a vesting agreement, but there are a couple of things we're not clear on. 1. If we've already signed a shareholders' agreement that didn't include vesting language, do we need to backdate the vesting agreement to before shares were actually allocated? We haven't distributed the physical shares yet, if that matters. 2. Vesting agreements generally keep someone employed. How does it apply if we aren't employees? E.g. if i suddenly stopped putting in any work, I still own 50%, it's not like I was fired or anything. What recourse would there be for me to give up my share of equity that I'm not earning anymore?

3answers

I'm going to talk from the perspective of a founder, not a lawyer. I also live in California and your state laws might defer.

I think if you are putting hours into your startup, you are also an 'employee' in addition to a founder.

Your board (ie. your cofounders) can decide at any time that you are not pulling your weight in the project and don't want you involved. Thus you can also be 'fired'.

In most vesting agreements there's a right to repurchase unvested shares that the company has. This is essentially how vesting works. The company decides that they don't want you anymore and they have the right to repurchase from you all the unvested shares at the price they were given to you initially ( not current market price ). You can only keep the vested portion.

I hope this helps


Answered 6 years ago

1. There are probably implications to backdating that only a lawyer should address so I can only speak to your 2nd question. The purpose of a vesting agreement is to retain key talent and to prevent the cap table from being ruined in the event that someone with significant equity quits or is terminated so to answer your question, your unvested shares *should* be cancelled.

Depending on where you are located, I can recommend a great US startup lawyer (private message me), and you should really standardize these agreements.

It's standard for the vesting to be 4 years. You *might* be asked to reset your vesting in your seed raise, FYI.

I'm not a lawyer but am the Founder of a Venture backed company so happy to talk to you if I can be helpful.


Answered 6 years ago

Great question! I've worked with a lot of founders who struggle with (a) shareholding structure and vesting, and (b) using shares as work incentives. I'd need some more info to give you a good answer - most importantly, what are you aiming to achieve with the vesting agreement? Happy to chat further!


Answered 6 years ago

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