EQUITY AND AGREEMENTS · FOUNDER GUIDE
Cofounder vesting and cliffs explained
Written by CofoundAlly · Updated
The short answer
Vesting means founders earn their shares over time instead of owning all of them on day one. A common structure is four years of vesting with a one-year cliff: nothing vests for the first year, a quarter vests at the one-year mark, and the rest vests monthly or quarterly over the following three years. If a founder leaves early, the company can usually buy back the unvested shares.
Why vesting protects every founder
Without vesting, a cofounder who leaves after six months keeps their full stake while the remaining team does the work. Vesting ties ownership to continued contribution and protects the founders who stay. Investors usually expect it for the same reason.
How the cliff works
The cliff is a probation period for ownership. If someone leaves before it, no shares vest. After it, the shares for the whole cliff period vest at once and the rest continue on schedule. The cliff gives a new partnership time to prove itself.
Acceleration and credit for past work
Acceleration speeds up vesting when certain events happen. Single-trigger acceleration vests shares when the company is sold. Double-trigger acceleration requires both a sale and the founder losing their role, and is more common because buyers want founders to stay.
Founders who have already worked on the company for some time sometimes receive vesting credit for that period. Agree any credit explicitly.
Tax and paperwork
Vesting has tax consequences that vary by country. In the United States, founders receiving restricted stock often file an 83(b) election with the IRS within 30 days of the grant. Other countries have their own rules, so speak to a qualified accountant or lawyer before issuing founder shares.
Frequently asked questions
What is a standard founder vesting schedule?
Four years with a one-year cliff is common, with the remaining shares vesting monthly or quarterly after the cliff. Teams can agree different terms.
Do solo founders need vesting?
It is less important at first, but investors may ask for founder vesting when they invest, so it is worth understanding the terms early.
What is an 83(b) election?
A US tax filing that lets a recipient of restricted stock be taxed on its value when granted rather than as it vests. It generally must be filed within 30 days. Get professional advice for your situation.
Next step
Model founder shares, an option pool and future rounds with the free CofoundAlly Equity Calculator.
This guide is general information, not legal, tax or financial advice. Rules differ by country; check with a qualified professional before acting.