Why am I paying for all the founder shares issued to me if my common stock is not vesting for 12 months?

As a founder and stockholder, you are paying for all the shares because you will own all 6,000,000 shares.  The concept of vesting can be confusing to a lot of founders because vesting as it relates to founder shares is different than vesting as it relates to options.  Most people only understand vesting for options.

Here’s how it works for vesting for founder shares.  When the Stock Purchase Agreement is executed, the company agrees to sell the founder the common stock, and the founder agrees to purchase the shares.  The founder now owns the 6,000,000 shares.  Vesting for founder shares does not mean that they don’t own the common stock they are issued.

Remember, vesting for founders’ shares relates specifically to the lapse or termination of the company’s repurchase option if the founder were to leave the company.  Here’s the breakdown:

  • At incorporation, the founder owns the shares.  The founder is now a stockholder.  This is NOT like an option where the optionholder has no ownership interest until he actually exercises the option and purchases the common stock.
  • However, to make sure the founder sticks around, the startup company will have the right to repurchase a portion of the shares if the founder leaves within 4 years.  This is called the repurchase option.  The longer the founder stays with the startup company, the more the founder will get to keep if he leaves.
  • Vesting for founder shares relates to the expiration or termination of the startup’s right to repurchase a certain amount of the shares if the founder leaves before the 4-year mark.

Vesting only affects the shares if you leave.  If you leave, the company will repurchase the unvested shares and take them back.  Therefore, even though there is vesting placed on the founder shares, the Stock Purchase Agreement provides that the founder must pay in full for the 6M shares.  For additional information on vesting for founder shares, check out this post.


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