Quick facts
- Common structure: four years, with a one-year cliff
- At the cliff: 25% vests at once
- After the cliff: 1/48th per month
- Tax deadline to know: 30 days to file an 83(b) election
A vesting schedule sets when equity is actually earned. You are granted shares or options on day one, but you do not own them outright yet. You vest into them over time, and if you leave early you keep only the vested portion.
In plain English
Being granted equity and owning equity are two different things. Vesting is the bridge between them, measured in months of continued work. The grant is a promise about the future. The vesting schedule is the price of collecting on it.
The standard structure, with real numbers
Four years, one-year cliff. A cliff means nothing vests at all until you reach the first anniversary.
Take a grant of 48,000 shares:
- Month 11: nothing vested. You are still inside the cliff.
- Month 12: 12,000 shares vest at once, which is 25%.
- Month 13: 13,000 vested. After the cliff, 1/48th of the total vests each month, and 1/48th of 48,000 is 1,000.
- Month 48: 48,000 vested. The 36 months after the cliff supply the remaining 75%.
The cliff is the part first-time founders underestimate. A person who leaves in month eleven earns nothing, no matter how good the eleven months were.
Why the cliff exists
It sets a minimum test of commitment before any ownership transfers, and it gives both sides a clean exit if the fit is wrong. Investors expect to see one. A cap table full of small unvested-then-abandoned stakes is a diligence problem later, and the cliff is what prevents it.
Common structures
| Structure | At the cliff | Total period | Usually for |
|---|---|---|---|
| 4 years, 1-year cliff | 25% | 4 years | Founders and employees |
| 3 years, 1-year cliff | 33% | 3 years | Later hires |
| 4 years, no cliff | Monthly from day one | 4 years | Senior executives |
| 2 years | Varies | 2 years | Advisors |
Acceleration
Acceleration vests equity faster when something specific happens, and it is negotiated up front because nobody will grant it later.
Single trigger accelerates on one event, usually an acquisition. It is contentious, because the person can become fully vested and then keep working for the acquirer.
Double trigger requires two things: a change of control, and the person being terminated without cause or resigning for good reason. This is the version most companies use, because it protects someone whose job disappears in an acquisition without paying out people whose job does not.
Amounts vary: all unvested shares, an extra twelve months of vesting, or half.
Reverse vesting, for founders who already hold shares
Founders usually hold their stock from incorporation, so there is nothing to vest into. Reverse vesting produces the same result from the other direction: you own all the shares now, but the company has a right to buy back the unvested portion at what you paid for it, and that right lapses over the schedule.
Economically identical. Legally the reverse. Worth understanding because the tax treatment follows the repurchase right, not the label.
What happens when someone leaves
| Status | Outcome |
|---|---|
| Vested shares | Kept, subject to any repurchase rights in the documents |
| Unvested shares | Forfeited, or repurchased at the original price |
For incentive stock options, the tax code sets a hard limit on how long you can wait. To keep incentive stock option treatment, the holder must have been an employee at all times up to the day three months before exercise.3 Miss that window and the option can still be exercisable under the plan, but the favourable tax treatment is gone. Many plans therefore set a 90-day post-termination exercise period to match.
The 83(b) election and its 30 days
If you receive shares subject to vesting, you can elect under section 83(b) to be taxed on their value now rather than as they vest. Early on that value is usually tiny, so the tax is tiny, and future appreciation is treated as capital gain instead of ordinary income.
The deadline is unforgiving. The election must be made no later than 30 days after the date of transfer,1 and the Internal Revenue Service states the same requirement in its guidance on making the election.2 The IRS publishes Form 15620 for the purpose.4
There is no relief for missing it because you were busy. This is the single cheapest thing on this page to get right and among the most expensive to get wrong.
What to negotiate
Ask about the cliff length, since six months is sometimes available. Ask for double trigger acceleration. Ask how long you have to exercise after leaving, because a 90-day window on options you cannot afford to exercise is not really equity. And ask whether early exercise is permitted, which is what makes an 83(b) election useful in the first place.
What to do next
If you have just been issued shares subject to vesting, work out the date 30 days from the transfer and put it in your calendar before you do anything else. Then read your grant for three numbers: the cliff, the total period, and the post-termination exercise window.
For co-founder specifics, see founder vesting.
Related reading
- Founder Vesting covers why co-founders need this most and resist it hardest
- Cap Table covers where vested and unvested shares are tracked
- SAFE covers the instrument that dilutes those shares before they vest