The opportunity to own equity in a company is one of the central reasons entrepreneurs found a business, and promising future equity to potential employees helps new companies attract the skilled people necessary to run and grow a successful business. Therefore, the promise of eventual equity ownership provides a powerful motivator for founders and employees to contribute their skills and expertise to building a business, and is one of the most valuable assets a new, pre-revenue, company has.
For these reasons, many founders decide to subject both founder and employee equity to “vesting”, meaning that full legal ownership of the equity accrues over time. Vesting can take multiple forms, such as granting a founder or employee an option contract to purchase equity units in the future, using a restricted unit arrangement that transfers some, but not all, of the benefits of equity ownership, or reserving a right to repurchase equity units that eventually lapses. Further, the triggers that transfer full ownership of the equity can vary, and include the simple passage of time, the achievement of corporate milestones, or revenue targets. However, regardless of the specific structure a vesting arrangement takes, subjecting founder and employee equity grants to vesting motivates these people to remain involved in the business, and to continue contributing to their skills to developing the company.
Our law firm has helped founders structure vesting arrangements for founder and employee equity. If you are considering starting a business and would like to learn more about how our law firm can help you succeed, call us, let’s talk.