Vesting schedule
A timeline over which a member's or employee's equity becomes non-forfeitable.
Definition
Vesting schedule defines when an equity grant becomes fully owned and non-forfeitable. Standard pattern in US tech: 4-year vesting with 1-year cliff (25% vests at 12 months, then monthly vesting over the next 3 years). Vesting protects the company from premature departures and aligns equity grants with continued contribution.
Context
Vesting applies to founder equity, profits interests, and stock options. Operating Agreements specify the schedule.
Example
A co-founder's 30% membership interest vests over 4 years with 1-year cliff. After 12 months they own 7.5%; after 4 years they own the full 30%.
Common pitfalls
- Acceleration provisions (full vesting on certain triggers like sale of company) need explicit drafting.
- Vesting on already-issued equity may have tax consequences.