Create a customized founder vesting agreement with standard 4-year vesting, 1-year cliff, acceleration triggers, and 83(b) election provisions. I built this generator based on templates from my own startup law practice.
Founding a startup requires immense dedication, vision, and risk-taking. One of the most critical early decisions founders make involves equity distribution and vesting schedules. The Founder Vesting Agreement Generator above helps you create a customized agreement that protects both the company and its founders through what can be challenging early years.
A founder vesting agreement is a legal document that establishes a schedule by which founders earn their equity over time, rather than owning it outright from day one. This arrangement protects the company and other stakeholders if a founder leaves prematurely, while also creating incentives for long-term commitment.
In essence, vesting means a founder's shares are earned gradually over a specified timeframe. If a founder departs before their shares fully vest, they forfeit or must sell back the unvested portion to the company, typically at the original purchase price (often nominal).
As a corporate attorney who has worked with hundreds of startups, I've seen the consequences when founders ignore proper vesting arrangements. Here's why these agreements matter:
Startups face numerous challenges during their first few years. When a founder exits unexpectedly in these critical early stages, it can be devastating if they take a significant equity stake with them. This creates what investors call "dead equity" — ownership held by someone no longer contributing to the company's success.
Most professional investors, including venture capitalists and angel investors, require founder vesting as a prerequisite for funding. They want to ensure the founding team has sufficient incentive to remain committed through the challenging early years.
When multiple founders join forces, vesting creates fairness. If one founder leaves after six months while another stays for years building the company, vesting ensures equity allocation reflects actual contribution over time.
Properly structured vesting can offer tax advantages through 83(b) elections, potentially saving founders significant money if the company's value increases substantially.
The most common founder vesting structure (and the default in my generator) is:
Equity vests over four years, meaning founders earn their full allocation after four years of continuous service.
No equity vests until the one-year anniversary of the vesting commencement date. At that point, 25% of the shares vest immediately. This protects against founders who leave within the first year.
After clearing the one-year cliff, the remaining 75% of shares typically vest in equal monthly installments over the next 36 months.
While this 4-year schedule with 1-year cliff is standard, my generator allows customization for your specific situation. You can model different schedules with our equity vesting schedule calculator to see exactly when shares vest under various configurations.
When founders receive equity subject to vesting, the IRS treats unvested shares as being received when they vest, potentially creating significant tax liability if the company's value increases over time. A Section 83(b) election allows founders to be taxed on the full grant upfront, typically when the shares have minimal value.
Important: Section 83(b) elections must be filed with the IRS within 30 days of receiving the shares. Missing this deadline cannot be remedied.
Acceleration provisions modify normal vesting schedules upon specific events:
Double-trigger acceleration often represents a fair compromise between founder and investor interests.
When founders leave, companies typically have rights to repurchase:
The valuation method and payment terms for these repurchases should be clearly defined in the agreement.
Not necessarily. While it's reasonable to acknowledge IP contributions, immediate vesting creates risk if that founder leaves early. Consider a partial vesting credit rather than full vesting.
Standard vesting agreements often result in unvested shares being forfeited even in these circumstances. However, many companies include "compassionate acceleration" provisions that provide partial or full vesting in cases of death or permanent disability.
Yes, but with caution. Modifications require consent from affected parties and may have tax implications. Any changes should be documented through formal amendments to the original agreement.
While my generator creates a solid starting agreement, having an attorney review your specific circumstances is advisable. Equity structures have significant long-term implications for taxes, fundraising, and exits.
This is a serious red flag. Reluctance to accept standard vesting may indicate misaligned expectations about commitment levels. Professional investors almost universally require founder vesting, so resistance now may cause problems later.
Founder vesting agreements represent one of the most important legal foundations for a successful startup. By using my generator to create a customized agreement, you're taking a crucial step toward protecting your company's future while creating the right incentives for long-term founder commitment.