styczeń 2023

What is Vesting? How to implement it in a company?

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Vesting is a very popular method of motivating company founders, managers or other key employees to work and dedicate themselves to the company.

As a rule, it involves a promise that they will receive shares or stocks, what shall motivate them to work and bind them to the company.

It can be applied in limited liability companies, joint-stock companies or simple public limited companies, or even limited joint-stock partnerships.

In the article below, I provide information on what vesting is and how it works.

The vesting agreement

Formally, vesting is a contractual arrangement (agreement) entitling to gradually acquire shares or stocks in a capital company at a predetermined, and usually very attractive, price and after a certain period of time (the so-called cliff period).

This is a great tool to motivate start-up founders or company managers to work more effectively and its main purpose is to reduce the risk of them leaving the company.

It can be assumed that a manager or founder faced with the prospect of receiving additional shares in the company will be less willing to leave the company.

Vesting in a start-up

In case of investment in a start-up, a vesting clause is an indispensable element, as an experienced, motivated founder or manager capable of realising the project’s goals is the most valuable asset for the investor in the entire investment process.

Acquisition of a certain pool of shares may (and even should) be subject to specific conditions (from the company’s point of view) , i.e. the time spent working in the company and meeting the assumed objectives, such as a certain value of the company, an increase in turnover, etc.

Early resignation from employment or function, or the occurrence of other negative circumstances provided for in the vesting clause, deprives the entitled person of the right to acquire the allotted pool of shares or stocks, and may even, assuming the appropriate wording of the contractual provisions, deprive them of the already acquired shares or stocks.

Thus, vesting may operate as both a carrot and a stick at the same time

How to implement vesting in a company?

It is worth noting that in order to be effective, the provisions of a vesting clause, must be very precise and beyond any doubt.

Typically, such clauses are included in articles of incorporation, investment agreements or accompany the articles of association of a company.

If vesting is not implemented at this stage – it can be done by concluding a separate vesting agreement. This is not an inferior method, but care must be taken to ensure that provisions of the vesting agreement are enforceable – since we promise a person to acquire shares in the company, we must be sure that those shares / stocks will be issued to that person, etc.

It is therefore important to link the vesting agreement to other acts and provisions in the company.

Vesting can be realised in a number of ways, but the most common are through increasing the share capital and establishment of new shares or issuance of new stocks. It is less common for vesting to be realised through the sale of existing shares or stocks.

What should a vesting clause contain?

The wording of a vesting clause should include determination of the duration of the clause, which is usually between 2 and 5 years. A vesting schedule (acquisition of the right to shares or stocks) is then created. We can distinguish between vesting, which is subject to certain (aforementioned) conditions, or so-called simplified vesting, which simply involves assigning a certain number of shares or stocks to a number of years.

The two forms of vesting can also be combined. The most favourable solution for the investor is one in which the founder or manager receives a small number of shares initially and the remaining shares or stocks after a certain period of time.

It can also be agreed that part of the shareholding will be acquired over the vesting period and the remaining ones only after the company has been acquired by a strategic (professional) investor.

Reverse vesting

The opposite of vesting is reverse vesting.

It involves the manager receiving the entire agreed pool of shares or stocks at the very beginning. If the negative circumstances specified in the clause occur, the manager loses these shares or stocks.

The incentive principle is therefore reversed – the entitled person acquires the whole of the shares or stocks at the outset and then has to make efforts and fulfil objectives to keep all the shares or stocks.

In this case, it is very important to precisely structure the provisions of not only the reverse vesting clause itself, but also, for example, the provisions of the articles of association or statutes of the company (in case of adopting a solution whereby the manager loses the shares or stocks by way of redemption).

It is very important that the company has the option to take back or redeem the shares/stocks that the manager is contractually required to give back. Failure to include appropriate provisions may lead to a situation where it is very difficult or even impossible to take back the shares/stocks.

Accelerated vesting

Another type of vesting is accelerated vesting, which we deal with in the event of a relevant circumstance. In such a case, the period of vesting clause may be shortened.

Relevant circumstances may be as follows:
 a merger of the company with another company;
 sale of the company;
 listing the company on the stock exchange.

The accelerated vesting clause is used to safeguard the interests of the investor and its exit from the investment.

If the circumstances in the clause arise, the founder or manager may receive either 100% of the agreed shareholding or some specified part thereof.

Safeguards for the shareholders and the investor

When drawing up a vesting clause, the shareholders or stockholders should safeguard their interests and those of the company. Such safeguards include:

 pre-emptive rights;
 lock-up;
 consent to the disposal of shares or stocks;
 good leaver/bad leaver clause.

A pre-emptive right to acquire shares involves granting existing shareholders or stockholders the right to acquire, first, the founder’s or manager’s shares or stocks. Such a provision in the company’s articles of association or statutes protects the shareholders or stockholders against an undesirable person entering into the company.

Lock-up consists of closing off the founder or manager’s ability to sell his or her shares or stocks for a certain period of time which, on the one hand, keeps the founder or manager in the company and, on the other hand, gives the shareholders or stockholders time to raise funds to acquire his or her shares or stocks.

The company’s articles of association or statues may provide that the founder or manager will have to obtain the approval of a specific company body to sell his shares or stocks. In practice, this means closing the possibility of selling shares if the competent authority refuses and forcing the founder or manager to negotiate with the company’s shareholders or stockholders.

Good leaver/bad leaver clause

The good leaver/bad leaver clause is to regulate the founder or manager leaving in certain situations.

A good leaver means a founder or manager leaving in situations beyond his or her control, e.g. in the event of death or incapacity – or – the achievement of a specific goal.

Bad leaver means a founder or manager leaving the company in circumstances that justify his or her dismissal from the company in case of breach of certain contractual clauses such as non-competition clause. However, a bad leaver can also mean leaving before the expiry of a minimum period or in the event of failure to achieve indicators (KPIs) specified in the vesting agreement.

In such cases, the contractual provisions must resolve the question of what happens to the shares or stocks held by such a founder or manager and on what terms (usually less favourable) their shares or stocks are acquired.

The general principles are quite simple – a ‘good leaver’ can generally keep most or even all of the shares/stocks and a ‘bad leaver’ loses some or even all of the shares/stocks. The details should, of course, be governed by the agreement and wording and the content of the vesting clause.

Safeguards for the founder or manager

From the point of view of the founder or manager, it is important that the agreement governing the vesting clause is concluded with each of the shareholders or stockholders and the company.

Only in this way can the enforceability of the vesting clause be ensured. Otherwise, a situation may arise in which the company (dependent on the votes of its shareholders or stockholders) is unable to issue the shares/stocks promised in the vesting agreement. Such a situation shall, of course, be strongly avoided.

The relevant wording of the agreement makes it possible to regulate the following issues:

 waiving the shareholder’s pre-emptive right or the stockholder’s right to subscribe for new shares or stocks;
 fixing a time limit for convening a shareholders’ meeting to adopt a resolution to increase the share capital;
 obligation for shareholders or stockholders to vote in favour of a resolution increasing the share capital to the exclusion of their pre-emptive or subscription rights;
 requiring the shareholders or stockholders to vote in favour of a resolution amending the company’s articles of association or statutes; and
 requiring the company’s Management Board to file an appropriate application to the National Court Register;
and thus, in short, allows for the actual execution of the vesting agreement.

How to implement vesting in a company?

Introducing vesting is not easy, it is necessary to align all the decision-making elements – the board, the shareholders and the content of the agreement itself – so that the agreement guarantees the rights and safeguards the performance of the obligations of each party.

On the other hand, it is no coincidence that vesting has become such a popular tool in companies.

It allows to really involve of managers or employees in the life and financial results of the company. The introduction of vesting is possible in virtually every capital company. To date, this has mainly been done in limited liability and joint-stock companies. If you are planning to base your business model precisely on vesting, perhaps the best form is a simple joint-stock company, which allows you to issue stocks simply and quickly.

If you are interested in vesting, please do not hesitate to contact us, we will be happy to help.


  • Mateusz Sawaryn

    Jestem radcą prawnym, posiadam 13-letnie doświadczenie w obsłudze prawnej spółek i przedsiębiorstw. Specjalizuję się w zakresie prawa spółek. Doradzałem w wielu transakcjach dotyczących przekształceń, połączeń spółek oraz wejść inwestycyjnych w spółki, związanych z pozyskaniem finansowania funduszy private equity oraz funduszy venture capital. Zajmuję się głównie planowaniem procesów i koncepcji transakcji inwestycyjnych, przekształceniowych czy założycielskich dla nowych spółek. Świadczę bieżącą obsługę korporacyjną spółkom prawa handlowego, w tym spółkom należącym do zagranicznych grup kapitałowych. W ostatnich latach poszerzyłem swoje umiejętności szkoleniowe zostając między innymi autorem webinarów Polskiej Agencji Rozwoju Przedsiębiorczości. Od 2015 r. prowadzę własną kancelarię prawniczą, działającą pod firmą Sawaryn i Partnerzy sp.k. Kancelarię tworzy obecnie zespół kilkunastu prawników, specjalizujących się w obsłudze prawnej przedsiębiorców - ze szczególnym uwzględnieniem branży informatycznej i nowych technologii, prawa własności intelektualnej oraz ochrony danych osobowych czy tematyki start-up.

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