Structuring Co-Founder Equity Vesting Schedule and Cliff Agreement Terms
Co-founder equity vesting schedules protect corporate capital by subjecting stock grants to temporal service cliffs and repurchase rights upon departure.
stock repurchase option
Meaning
Specific triggering events allow a company to buy back shares from a holder. The stock repurchase option typically applies to unvested shares when a service provider leaves the organization. It ensures that equity is reclaimed for future use by active contributors.
Triggering Event
Termination of employment is the most common reason for exercising the right. The stock repurchase option activates when the holder is no longer providing services to the firm. It can also be triggered by a proposed transfer of shares to a third party.
This allows the company to keep ownership within a closed group of approved holders.
Price Determination
Fixed formulas dictate the cost of the buyback. In many agreements, the stock repurchase option allows the firm to buy unvested shares at the original purchase price. For vested shares, the price might be the current fair market value as determined by an independent appraiser.
This prevents the holder from profiting from unearned equity while providing a mechanism for liquidity if the company chooses to exercise the right for vested stock.
Window of Exercise
Time limits apply to when the company can act. The stock repurchase option must usually be exercised within sixty or ninety days of the termination. If the company misses this window, the holder may keep the shares indefinitely.
This creates a deadline for the board of directors to make a decision on the allocation of capital.