What if a founder leaves the company? Stock Vesting Issues

Elliott Stapleton Corporation

What happens if a founder leaves (or dies) before putting in the hard work necessary  for the company to be a success? If that founder has full ownership of his or her stock, then you, as the remaining owner(s), will be required to pay despite the lack of contribution to the success.

When should a vesting schedule be considered?

Without a vesting schedule as a restriction on the founders stock, all of the founders receive full ownership immediately upon the formation of the company.  A stock vesting schedule is used to avoid the potential windfall for a founder who leaves the company without putting in the time and effort necessary to succeed.

A vesting schedule should be considered if your startup business has:

  1. More than one founder;
  2. Aspirations of seeking venture capital financing or going public and
  3. There is a lot of work before the company will have appreciable value.

This schedule will typically include a vesting cliff which will incrementally increase ownership over the duration of time a founder is with the Company.

 

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About the Author

Elliott Stapleton

Elliott is a partner in the firm of Cornetet, Meyer, Rush and Stapleton, LPA. His business clients range from small single member companies to large privately held businesses.

Elliott’s legal services include advice on Business Formation and Transactions, Real Estate Transactions, Trademark Law, Copyright Law, Estate Planning, and Probate Administration.