If you`re a startup or an established company, you may be considering giving equity to your employees or partners. However, before doing so, it`s crucial to have a vesting shares agreement in place.

Vesting means that the equity will only be earned and owned by the employee or partner once they meet certain conditions, such as staying with the company for a certain period of time. The vesting shares agreement outlines these conditions, ensuring that the equity is only given to those who have earned it.

There are different types of vesting schedules, but the most common one is the time-based vesting schedule. This means that the equity will vest over time, typically 4 years, with a portion of the equity vesting each year.

For example, if an employee is granted 10,000 shares with a 4-year vesting schedule, they will earn 2,500 shares each year. If the employee leaves after 2 years, they will only have earned half of the shares (5,000 shares).

The vesting shares agreement also includes a cliff vesting provision, which means that the equity will not vest until a certain period of time has passed. This ensures that the employee or partner is committed to the company in the long-term, and not just using the equity as a short-term incentive.

It`s important to note that vesting shares agreements can also include acceleration provisions. This means that the vesting schedule can be accelerated in certain circumstances, such as a change of control of the company or if the employee is terminated without cause.

In conclusion, a vesting shares agreement is crucial in ensuring that equity is only given to those who have earned it. It protects both the company and the employee or partner, and ensures that everyone is committed to the long-term success of the company. If you`re considering giving equity, make sure to consult with a lawyer and have a well-drafted vesting shares agreement in place.