Meaning
Equity distribution schedules that earn stock ownership through ongoing service rather than monetary investment form core founder alignment structures. Within early-stage governance, sweat equity vesting binds share ownership to duration of service or operational achievements over a multi-year period. The schedule governs share entitlement retention, ensuring that founders who depart early forfeit unearned ownership to the corporate treasury.
It stops applying once the full vesting schedule completes or all allocated shares are earned.
Earned Ownership
Continuous operational contribution transforms unvested equity into absolute legal ownership over time. Implementing sweat equity vesting protects co-founders from early departure imbalances where a non-working founder retains equal equity shares. Monthly or annual vesting increments ensure equity aligns with sustained effort.
Unvested shares remain subject to company repurchase at nominal value upon resignation.
Forfeiture Mechanism
Premature departure by a founding team member triggers automatic share cancellation procedures. Unvested equity stock returns to the unallocated option pool, allowing remaining founders to hire replacement executive talent. The mechanism prevents dead equity from burdening the corporate capitalization table.
Retained share value reflects length of active contribution.
Acceleration Event
Corporate acquisition or change of control can trigger immediate vesting of remaining unvested shares. Double-trigger provisions protect founders by accelerating vesting only if termination follows an acquisition transaction.
