Founder vesting
Should two founders paper vesting at formation or wait for a priced round?
Charlotte Lynn Luu
Attorney & Corporate Counsel, Charlotte Corporate Counsel ·
Two founders should paper vesting at formation, in the same documents that issue their stock. Waiting for a priced round leaves the riskiest stretch uncovered: the months when one of you might walk away. It also hands the terms to your investor's counsel, who will ask for vesting anyway. At Charlotte Corporate Counsel, I build that structure at formation, because getting it right once costs far less than the cleanup diligence forces later.
Here's what waiting costs you, how it plays out for two founders, and five moves to make this week. For the bigger case, read why I build the legal infrastructure at formation.
Waiting leaves you exposed, and lets someone else write the terms
Without vesting, each founder owns their shares outright from day one. If your co-founder leaves in month nine, they keep half the company. You keep building, and their stake sits on the cap table doing nothing.
Investors notice. A priced round's term sheet often asks founders to re-vest as a condition of closing. By then you're negotiating on their draft, on their timeline, with the money waiting on your signature.
There's a tax angle too. Founders usually file an 83(b) election within 30 days of receiving restricted stock, while the shares are worth almost nothing. Adding vesting later can raise that question again, at whatever the shares are worth by then.
What it looks like for two 50/50 founders
Say two pairs of founders each split their company 50/50. The first pair signs stock purchase agreements with four-year vesting and a one-year cliff, and files their 83(b)s that month. The second pair plans to sort it out at the Series A.
Now one founder in each pair leaves before the first anniversary. In the first company, nothing has vested yet, so the company buys the shares back at what was paid for them. The founder who stays has equity to offer a replacement. In the second company, the departing founder keeps half, and every investor who reads that cap table asks how it happened.
A formation checklist tells you to sign vesting documents. It doesn't tell you what it costs to fix them in the middle of a raise. I think of governance as "the structure underneath it all, built right at formation so it holds up at the next round," because the first draft is always the cheap one.
You don't have to guess at that cost, either. Every engagement starts with a clear, fixed-scope proposal, so you know exactly what you're getting and what it costs before any work begins.
"But we trust each other." Good. That makes it easy to agree on vesting fast. Vesting protects the founder who stays, and both of you are betting you'll be that founder.
Five moves to put vesting in place this week
Whether you're forming now or formed without vesting, these close the gap before an investor's counsel finds it.
- Agree on one schedule.Put both founders on the same terms unless one of you has a real reason to differ. If you do differ, write the reason down.
- Issue the stock with vesting attached.Use a stock purchase agreement that lets the company buy back unvested shares at cost if a founder leaves.
- File your 83(b) within 30 days.Send it to the IRS by certified mail, keep the receipt, and give the company a copy.
- Decide what a sale does.Settle now whether any vesting speeds up if the company is acquired, so it isn't a fight later.
- Keep it findable.Store the signed agreements and the 83(b) proof where the first diligence request can reach them in an afternoon.
Working on something like this? Tell Charlotte about it.
Read the full argument
Vesting is one piece of a larger case for getting the company's structure right on day one, laid out in building the legal infrastructure at formation that still holds up at the next round.
Charlotte Lynn Luu
Attorney & Corporate Counsel, Charlotte Corporate Counsel
Charlotte is a Georgia-licensed attorney who practiced at Baker Hostetler, Baker Donelson, and Kutak Rock before launching her own practice. She writes on formation because she sets up the founder agreements and ownership structure that startups later carry into diligence.
