How to Review a Vesting Agreement: A Clause-by-Clause Checklist

How to review a vesting agreement before you sign Almost every vesting dispute comes down to four questions the agreement should answer without argument: how fast do the shares vest, what happens to the unvested shares if you leave, what happens to the vested ones, and what happens on an acquisition. Read the agreement with those four in hand and the clauses that matter stand out quickly. Work through the checklist below clause by clause. Whether you are the founder receiving equity or the company protecting the cap table, the test for each clause is the same: is the rule clear enough that a departure could be settled by reading it? This is general information, not legal advice. Because equity, tax and company-law consequences are significant, have a lawyer and a tax adviser review the final draft. ## The clause-by-clause checklist ### 1. What is subject to vesting

• Is it clear which shares are covered, and how many? Is the vesting start date fixed, and does it match reality (incorporation or joining)?
• Red flag: an ambiguous start date, which changes how much is vested at any moment. ### 2. The vesting schedule
• Is the schedule stated (period, cliff, and the instalments after the cliff)?
• Red flag (founder): a schedule longer than four years with a long cliff, so you earn equity very slowly. Red flag (company): no cliff at all, so someone who leaves in month two keeps a slice. ### 3. The cliff
• Is the cliff period clear, and what vests on reaching it?
• Red flag: a cliff so long that a founder who contributes for most of a year leaves with nothing, or a cliff that quietly resets on any change of role. ### 4. Reverse vesting and buy-back
• If structured as reverse vesting, is the buy-back price and procedure for unvested shares clear and fair (usually face value or cost)?
• Red flag (founder): the company can buy back vested shares too, not just unvested ones. Red flag (company): no workable buy-back procedure, so the right cannot be exercised in practice. ### 5. Good leaver / bad leaver
• Are the categories defined precisely? Is "cause" for bad-leaver treatment tightly drawn?
• Red flag (founder): a broad or subjective definition of cause that lets the company label almost any exit a bad-leaver event. Red flag (company): a good-leaver definition so wide that a founder who simply resigns keeps everything. ### 6. Treatment of vested shares on exit
• Is it clear that vested shares are generally retained, and are any compulsory-sale terms for vested shares fair?
• Red flag: a forced sale of vested shares at a nominal price even for a good leaver, which undoes the whole point of vesting. ### 7. Acceleration on a change of control
• Is acceleration single or double trigger, and is the percentage clear?
• Red flag (founder): no acceleration at all, so an acquisition wipes out unvested equity. Red flag (acquirer or company): full single-trigger acceleration, which an acquirer may resist and which can derail a deal. ### 8. Transfer restrictions
• Are restrictions on transferring, pledging or encumbering shares clear, and do they match the Articles and Shareholders' Agreement?
• Red flag: restrictions in the vesting agreement that conflict with the Articles, creating uncertainty about which controls. ### 9. Consistency with other documents
• Does the agreement sit cleanly alongside the Shareholders' Agreement, the Articles, and any employment or founders' agreement?
• Red flag: a conflict between documents on leaver treatment or transfer, with no clause saying which prevails. ### 10. Tax
• Does the agreement flag that vesting, buy-back and a later sale can be taxable events, and that each party takes its own advice?
• Red flag: silence on tax, leading to a surprise liability on a buy-back or sale. ### 11. Governing law and disputes
• Is the governing law stated and the forum sensible?
• Red flag: a forum that makes enforcement impractical for the party most likely to need it. ## Read it in this order Do not review a vesting agreement top to bottom. Start with the schedule and the cliff (clauses 2 and 3), because they decide how fast equity is earned. Then read the leaver and buy-back clauses together (4, 5 and 6), because they decide what happens when someone goes. Then check acceleration (7), because it decides what happens on an exit. Only then confirm the transfer restrictions and consistency with the other documents. Reviewing in that order keeps your attention on the clauses that decide who keeps equity. ## A quick note on the law Founder and employee vesting interacts with the Companies Act, 2013 (buy-back and transfer restrictions), the company's Articles and Shareholders' Agreement, and income-tax rules that can make a buy-back or sale taxable. The approach differs by jurisdiction: US founders often hold restricted stock with an 83(b) election, which has no Indian equivalent. For the UK, Ireland, Singapore, Australia or the US, check local company law and tax. This is not legal advice; take legal and tax advice before signing. ## Where a contract workspace helps Reviewing one vesting agreement by hand is manageable. The strain shows across a growing cap table: tracking each person's vested and unvested position over time, knowing what a leaver is entitled to on the day they go, keeping every vesting agreement in step with the Articles and Shareholders' Agreement, and finding the acceleration terms fast when an acquirer appears. Drafting a vesting agreement, reviewing its leaver and acceleration clauses, tracking vesting dates and cliffs, and governing every holder on the cap table can sit in one AI workspace tuned to how your company issues equity. Adira is one such workspace, built to keep the whole cap table's agreements in one place.