Modern Counsel for Growing Companies
In plain English
The process by which an equity award or other benefit becomes earned or no longer subject to specified forfeiture or repurchase conditions. Founder stock can be issued upfront while remaining subject to a repurchase right that lapses over time. The schedule, service requirements, departures, and acceleration terms determine what the person retains.
Types and key distinctions
Cliff Vesting
A vesting arrangement under which no portion of a grant vests until a specified initial period has been completed. At the cliff, an agreed portion vests at once, with the rest following the schedule. A one-year cliff in a four-year schedule commonly releases the first year's portion after twelve months.
Dead Equity
An informal term for ownership held by someone who is no longer contributing to the business, particularly a departed founder. The interest may still carry economic or voting rights. It does not disappear simply because the owner stopped working; vesting and repurchase arrangements must create any agreed adjustment.