Two or three founders start a company, split the shares equally and get to work. A year later one of them leaves. The company keeps growing, but a third of it now belongs to someone who no longer contributes. When the first investor looks at the cap table, this is one of the first things they ask about.
Founder vesting exists to prevent exactly this.
What vesting means
Vesting means that founders earn their shares over time, rather than owning all of them unconditionally from day one. A common model is four years with a one-year cliff: if a founder leaves in the first year, they keep nothing (or very little), and after that their shares vest gradually, month by month or quarter by quarter, until the end of the fourth year.
The exact numbers are negotiable. What matters is that the founders agree on a rule before anyone leaves.
Good leaver, bad leaver
Most vesting arrangements distinguish between the reasons a founder leaves. A good leaver, for example someone who leaves because of illness, usually keeps the vested shares and sells the rest back at a fair price. A bad leaver, for example someone who breaches a non-compete or is dismissed for cause, may have to transfer even vested shares at nominal value.
These definitions are where most of the negotiation happens, and where vague wording later causes disputes.
How it works in practice
In many legal systems, including Serbia, shares in a limited liability company cannot simply be “unvested”. Vesting is usually built into the shareholders’ agreement through an obligation of the departing founder to transfer shares, or an option of the company or the other founders to buy them, at a price set by a formula. The articles of association need to support this, for example through transfer rules and pre-emption rights, and the transfer itself must follow the formal requirements of the applicable company law.
Tax consequences of acquiring and transferring shares should be checked with a tax advisor before the structure is final.
Why before the first investor
Investors almost always ask for founder vesting. If it is not in place, they will require it as a condition of the round, often on their terms and under time pressure. Agreed early, between founders who still trust each other, vesting is a simple conversation. Agreed during a funding round, it becomes part of the negotiation.
There is also a practical reason: the earlier the rules are set, the lower the value of the shares involved, which makes buy-back prices and tax questions easier to handle.
What to do now
If you are starting a company with co-founders, put vesting, leaver rules and decision-making in a short founders’ agreement now. It costs far less than resolving a founder dispute once the company is worth something.
Practice area: Startup & Business Law
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