What Is ‘Vesting’?
‘Vesting’ is the process of allocating shares gradually rather than all at once. For example, if a shareholder meets specific ‘vesting criteria’—such as an employee staying with the company for a set number of years—they will receive shares incrementally as an incentive to remain with the company. If the shareholder does not meet these criteria—such as leaving before the designated ‘vesting date’—they forfeit the shares.
Startups often use vesting schedules to reward employees who contribute to the company’s growth and stay with the company over time.
Vesting is not limited to employees. Companies can establish various criteria for shares to vest, as long as these criteria are clear and measurable. For instance, the criteria might involve achieving company milestones, such as reaching a target number of users, completing specific development tasks, or meeting certain financial benchmarks.
Posted on 15 September 2024