What Is Vesting?
Vesting is the schedule over which someone earns full ownership of their shares or options, typically through continued service over several years.
How it works
With vesting, equity is earned over time instead of owned outright on day one. A common pattern is four years of vesting with a one-year cliff, but the schedule is set by agreement and varies. Unvested shares usually return to the company if the person leaves.
Founders often accept "reverse vesting": they hold the shares from the start, but the company can repurchase unvested shares if a founder leaves early. Investors frequently ask for it so that one departing founder does not walk away with a large stake.
Example
For example, a co-founder holds 1,000,000 shares that vest monthly over four years, or 48 equal parts. After 12 months, 250,000 shares have vested. If the co-founder leaves at that point, 750,000 unvested shares typically go back to the company, and the remaining founders are not left with a large unearned stake owned by someone who left.
Why founders care
Vesting protects the team and the company from a partnership that ends early. It also signals commitment to investors and keeps employees around. Vesting terms, acceleration on a sale and tax elections around founder stock are legal and tax details, so have a lawyer and accountant confirm them.
Common mistakes
- Skipping vesting between co-founders because everyone trusts each other.
- Not putting the schedule in a signed agreement.
- Ignoring tax timing for early-exercised or restricted stock.
Frequently asked questions
What is a typical vesting schedule?
Four years with a one-year cliff is common, but it is not a rule. Schedules vary by company, role and negotiation. Check what is typical with a startup lawyer for your situation.
What happens to unvested shares if I leave?
Typically they are forfeited or repurchased by the company, depending on your agreement. Vested shares or options usually stay yours, though options may have a deadline to exercise.
Related terms
Go deeper
- How to Split Equity Between Co-Founders (and Vesting) GuideHow to split equity between co-founders: factors to weigh, equal vs unequal splits, 4-year vesting with a 1-year cliff, and a worked example with round numbers.
- How to Find a Co-Founder and Know If They Fit GuideHow to find a co-founder: do you need one, where to look, how to test the fit, solo founder vs co-founder, and the red flags that should make you walk away.
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General information, not legal, tax or financial advice. Reviewed 11 November 2026.