Meaning
Contractual clauses define the specific terms under which shares or options are granted to employees, advisors, or founders. An equity provision outlines the size of the grant, the type of security, and the conditions that must be met for the ownership to be finalized. These terms are usually found in employment agreements or stock option plans.
The provision establishes a legal obligation for the company to issue equity upon the fulfillment of the agreed-upon criteria.
Vesting Schedule
Time-based or milestone-based conditions govern the gradual transfer of ownership to the recipient. The equity provision often includes a four-year vesting period with a one-year cliff. This mechanism ensures that the individual remains committed to the company before they can claim their full stake.
If the person leaves before the end of the period, the unvested portion of the equity returns to the company.
Acceleration Right
Special conditions might allow the equity to vest faster in the event of a sale or merger. The equity provision specifies whether this acceleration is single-trigger (on the sale itself) or double-trigger (on the sale and subsequent termination). Such terms protect the recipient from losing their earned stake during a corporate transition.
Grant Limit
Specific boundaries prevent the over-allocation of shares from the approved pool. The equity provision limits the total number of shares that can be issued under a single agreement.
