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Vesting means that each owners shares of the company will be given to them over time so right off the bat neither of the people own an outright 50% stake. for

Vesting means that each owners shares of the company will be given to them over time so right off the bat neither of the people own an outright 50% stake. for example a common scenario is a Four year vesting with a one year cliff, acceleration up any sale or liquidation event. What this means in every day terms is that you own more shares each month you work, but if you leave before a year is up you own nothing. So if your half is 5 million shares then after the first year of working you will have earned 1.25 million shares after your first year which are now yours and cannot be taken away. For each working month after that you will earn an additional 104,167 shares (its actually 166 2/3) until you have completed your 48th month at the company at which point you now own all five million shares, or are "Fully vested" as the term would imply. It basically just ensures dedication to a project and that an early person who was involved with the company in some way does not come back 10 years later suing for "their half" of a company they may have helped start but had no involvement in product direction, success etc.

r0s 14y ago
Thanks for the explanation, I've got a couple questions: Say two founders begin a vested company and one drops out, does total ownership transfer to the other founder? If BOTH drop out, how are assets divided? Lastly, it seems that the disagreements over ownership will merely shift to disagreements over 'time worked', and weather the effort was legit.
- greghinch 14y ago
  You would lay out how things are divided in your paperwork when you form the company. If there are no outside investors, it's simpler for a company to fold. In the case of one person leaving, all their invested shares fall back into the management pool and are distributed proportionally amongst the remaining co-founders (but not investors, they always only have the number of shares they paid for). Also make sure you do an 83b election (in the US) for vesting shares. Otherwise you pay income taxes on the value of them as they vest. Google it for lots more info, it's pretty straightforward

r0s 14y ago

Thanks for the explanation, I've got a couple questions: Say two founders begin a vested company and one drops out, does total ownership transfer to the other founder? If BOTH drop out, how are assets divided? Lastly, it seems that the disagreements over ownership will merely shift to disagreements over 'time worked', and weather the effort was legit.

greghinch 14y ago
You would lay out how things are divided in your paperwork when you form the company. If there are no outside investors, it's simpler for a company to fold. In the case of one person leaving, all their invested shares fall back into the management pool and are distributed proportionally amongst the remaining co-founders (but not investors, they always only have the number of shares they paid for). Also make sure you do an 83b election (in the US) for vesting shares. Otherwise you pay income taxes on the value of them as they vest. Google it for lots more info, it's pretty straightforward