Founder vesting, and the co-founder who leaves in month seven

Vesting when the shares are already yours

For an employee, vesting points forwards: options are granted and become exercisable over time. Founder vesting works the other way round. The shares are issued in full on day one — you are on the cap table for the whole amount, you vote them, you hold them — and the company takes a right to buy them back if you leave. That right covers everything at the start and lapses as the schedule runs. Practitioners call it reverse vesting, and the distinction is worth holding on to, because the tax treatment, the voting and the paperwork all differ from an option grant.

The repurchase price is the part that does the work. In a properly drafted restricted stock purchase agreement the company buys unvested shares back at what the founder paid for them, which for stock issued at incorporation is a nominal figure. A founder who leaves early is not bought out. The unvested shares simply go back.

Four years, a one-year cliff, and what each part is doing

The standard is a 48-month schedule with a 12-month cliff. Nothing vests for the first year. On the first anniversary 25% vests in a single step, and the remaining 75% vests monthly at 1/48th of the total across the following 36 months.

The cliff is binary, and deliberately so. Leave on day 364 and you keep nothing; leave on day 366 and you keep a quarter of your allocation permanently. Its job is to make the first year a real commitment test, because most co-founder relationships that are going to fail fail inside it.

Founders who worked on the business before incorporating often want credit for that time, either by starting partly vested or by setting the vesting commencement date back to when work actually began. Both are ordinary in moderation. Investors look at it in diligence, and a founder who arrives at a Series A already substantially vested tends to attract a re-vesting condition rather than congratulations.

What happens to the shares of a founder who leaves

Departure triggers the repurchase right, and the right is normally exercisable only inside a short window — 90 days after the employment or service relationship ends is a common figure. Miss the window and the right expires. The shares stay out, and the company has lost the protection it drafted for by simple inattention.

Exercising it is a corporate act, not a conversation. The board has to approve the repurchase, the company has to pay the price, and the transfer has to be recorded in the stock ledger. That means a resolution or a written consent, which is exactly the sort of decision a board resolution exists for. Companies that discover this at the last minute tend to discover at the same time that their board has a vacancy and cannot validly act.

The alternative outcome has a name. Dead equity is stock held by someone who no longer contributes, and on a small cap table it is disproportionately visible: two founders who spent three years building to a Series A next to a third who was there for a few weeks and owns the same slice. Investors treat a large block of it as a governance question and frequently as a pricing one, because the incentive left in the business for the people still doing the work has quietly shrunk.

The 83(b) election, and the thirty days that decide it

Restricted stock is taxed under section 83 of the Internal Revenue Code. The default rule is that you recognise ordinary income as the shares vest, valued at the market price on each vesting date. For a company that works, that is a tax bill that grows every month against shares you cannot sell.

A section 83(b) election flips it. You elect to be taxed at the moment of grant on the whole allocation, at its value then — which at incorporation is somewhere near nothing. Davis Wright Tremaine's worked example for a founder holding a million shares issued at five cents puts the difference in the hundreds of thousands of dollars — and that is a company whose shares only ever reach four dollars.

1. 1

   Fix the grant date, not the paperwork date

   The 30 days run from the date the stock is actually transferred to you, which is normally the date the board approved the issuance and the purchase agreement took effect. Signed documents often reach founders days or weeks later. The clock does not restart when they arrive.

2. 2

   Complete Form 15620

   The IRS published a standard form for the election in November 2024, currently in its April 2025 revision. A non-standardised letter containing the required information is still accepted, but the form removes the argument about whether you included everything.

3. 3

   File inside the 30 days, by one route only

   The IRS opened online submission of Form 15620 through its website in 2025, and filing by post remains available. Use one method. Filing the same election twice creates a records problem the IRS has no clean way to resolve.

4. 4

   Keep proof that it was filed

   The online route returns a confirmation and a downloadable copy of the filed form, which is the main practical reason to prefer it. If you post it, send it in a way that produces a dated receipt and keep that receipt permanently.

5. 5

   Give a copy to the company

   The issuer needs the completed election for its own records and its payroll treatment of the grant. Founders who file and never tell anyone create a diligence problem years later, when nobody can evidence that the election was made.

Acceleration: single trigger and double trigger

Acceleration decides what happens to unvested shares if the company is bought. Single trigger vests everything on the acquisition alone. Double trigger vests only if the acquisition happens and the founder is terminated without cause, usually within a stated period afterwards — twelve months is the common figure.

Founders asking for single trigger are, in effect, asking to make their own company harder to sell. It is worth understanding rather than fighting.

What else the founders' paperwork has to settle

For a corporation, most of that belongs in a shareholder agreement alongside the bylaws — see what belongs in a shareholder agreement for the clause-by-clause version. For an LLC it lives in the operating agreement instead, and the vesting concept is delivered through unvested membership units rather than repurchasable stock.

Outside the United States

The idea travels; the machinery does not. Section 83(b) is a US federal tax election with no direct counterpart elsewhere, and other systems tax restricted shares under their own rules — some with their own short deadlines for making an election. Do not assume thirty days, and do not assume the election exists at all.

The commercial result is usually reached through compulsory transfer provisions — good leaver and bad leaver clauses — which sit either in the company's constitutional document or in the shareholders' agreement. In the UK, the articles of association are the natural home for them, because the articles bind every shareholder automatically and are on the public register, so nobody can claim not to have known.

The conversation to have in week one

Nobody wants to raise vesting at the point where two people are excited about the same idea. That is precisely why it works. Proposing it while everyone still expects to stay costs nothing, because everyone expects to vest in full. Proposing it eighteen months later, when one founder has visibly disengaged, is an accusation. The clause is cheap when it is theoretical and almost impossible to agree once it is not, and that asymmetry is the whole argument for doing it on day one.