Comments on: What should the vesting terms of founder stock be before a venture financing?

By: Jheur03

Jheur03 — Thu, 16 Dec 2010 02:44:18 +0000

Yokum
I have question. I had company common share 10% and I was work for contractor, company was set up S-Corp.
Company loss since when start up, i had used loss for my incometax, during the this day I left company.
What is benefit of 10% share to me? and what responsbility I have? can I sell this share?

By: Yokum

Yokum — Thu, 09 Dec 2010 11:28:58 +0000

@Ryan – stock purchased at FMV can subject to vesting. However, if the transaction is for capital raising purposes, it would be odd to have them subject to repurchase if the founder quits.

By: Ryan S.

Ryan S. — Thu, 18 Nov 2010 01:06:15 +0000

Yokum,

Can founders shares be subject to a vesting schedule if they are purchasing them for fair market value, rather than contributing service?

In other words, if a founder purchases common stock at $0.001 per share for 5m shares, would that investment into the company ($5,000 seed money capital contribution) entitle the founder to all 5m shares upon investment, or can those 5m shares be subject to a vesting schedule over a few years despite the fact that they have already been paid for them through capital into the company?

By: Yokum

Yokum — Mon, 16 Nov 2009 08:13:59 +0000

@newtonprep – don't understand exactly what you question is.

By: Yokum

Yokum — Mon, 16 Nov 2009 01:13:59 +0000

@newtonprep – don't understand exactly what you question is.

By: newtonprep

newtonprep — Tue, 10 Nov 2009 20:19:43 +0000

What are strengthens and pitfalls of this example: The Jewel Company is a C status corporation; incorporated in the State of Florida on June 1, 2009. Initially, it authorized 20,000,000 shares of common stock as indicated in its Articles of Incorporation. On November 9th, 2009, its Board of Directors approved the issuance of 4,000,000 shares [representing 20%of its class “A” (one vote per share) stocks]. In addition, the Board of Directors approved the issuance of 2,650,000 shares of its class “A” stock and 800,000 of its Class “B” stock (carrying voting privileges of 20 votes per share) to its Founder. 40% of the Founder’s Class A shares is vested at the end of the first year following such issuance, with the remaining 60% to vest monthly over the next three years. The unvested shares are fully vested in the event of a merger or acquisition if the Founder is terminated without “cause” by the acquiring entity within one year.

By: Yokum

Yokum — Wed, 26 Nov 2008 20:44:03 +0000

@tia – The founders would enter into a stock restriction agreement that subjects the already issued shares to a repurchase right in favor of the company that lapses over time as the stock vests. Founders would NOT be granted additional shares subject to vesting.

By: tia

tia — Wed, 26 Nov 2008 14:52:01 +0000

Hi Yokum,

In a situation where founders own common stock shares not subject to vesting and there is a contemplated subsequent Series A round, how will the Series A investors impose vesting? I assume they would have to provide the founders options to purchase additional shares that are subject to a vesting schedule?

By: Yokum

Yokum — Tue, 19 Aug 2008 07:05:29 +0000

@Newfounder – when a founder leaves, his unvested shares are repurchased by the company. Typically if the shares are not repurchased, they are released from the repurchase option (i.e. are fully vested). Vesting depends on continued services. There is no “handcuff” for someone that is no longer a service provider. Thus, I don’t understand the question. With respect to currently employed founders, if one of them doesn’t agree to the revised vesting terms from the VC, the VC may not invest.

Also, if you have received a Series A term sheet, congratulations.

By: newfounder

newfounder — Mon, 18 Aug 2008 14:39:58 +0000

one more follow up question:
what about another term sheet that has better financial terms for company but requires founder’s shares to be 0% vested at close? What happens to previously vested, non-active founder’s shares? Is this simply to be negotiated with VC or does the original founder have legal rights to previously vested shares?

thanks