Vesting clauses offer investors protection against a part of the founder or management team leaving the company at an early stage. However, from the point of view of the founding team, a commitment to the company can also make sense, as the team has to rely on each other accordingly. Founders or important employees/managers who leave the company prematurely should lose all or part of their shares and thus lose their shareholder status. If a founder wishes (or must) leave the company, the shares can be used as an incentive to bring a new employee into the management team. The following types of vesting are established in the practice:

  1. time investing

The longer a founder remains in the company, the fewer shares have to be surrendered upon leaving the company.

  1. performance vesting

A distinction can be made between financial and non-financial vesting. In the former case, vesting is linked to business ratios, while non-financial vesting focuses on other ratios, such as customer satisfaction.

  1. linear vesting

Linear vesting is similar to time investing. A constant percentage rate is agreed for the share of shareholders who are subject to vesting.

In practice, two to five years are usually agreed for the vesting period. Within this period, the shares of the founders are subject to the transfer obligation or the right of redemption upon leaving the company and can be reduced step by step depending on their structure. It is also conceivable that a certain percentage of the shares are not subject to vesting in order to reward the founders for their preparatory work or in the case of an exit within the vesting period, all shares are deemd vested.

If a shareholder withdraws from the management team during the vesting period, a distinction must be made according to the reason for the withdrawal. Accordingly, the severance payment regulations are also based on this. A distinction is made between the so-called good-leaver and bad-leaver regulations.


Good Leaver Bad Leaver
Death, reduced earning capacity or occupational disability, retirement, expiry of the contract Rejection of a contract extension on at least the same economic terms. Refusal to renew a contract on at least the same economic terms.


Legitimate termination of the founder/manager for good cause for which he is not responsible.


Termination of the manager/ founder without good cause.


Termination by the company without good cause for which the manager is not responsible. Termination by the company for good cause for which the founder/manager is responsible.


In addition to the reasons mentioned here, there are a number of borderline cases which can be assigned to the reasons of good leavers or bad leavers, depending on the design of the individual case. It is often regarded as a good leaver if the manager/ founder leaves the company at his own request because personal differences have made it unreasonable for him to remain. A general distinction is made as to whether the behaviour was innocent, slightly negligent, grossly negligent or intentional. If the conduct was intentional or grossly negligent, a bad leaver rule will always apply.

A clear decision is therefore important, as the amount of the severance payment depends on the reason for the withdrawal. Normally, the severance payment in a good-leaver case is based on the market value of the shares that increase over the vesting period. Bad leavers usually receive a value that corresponds to the book value of the shares or a value between book and market value. A settlement in the amount of the originally invested amount is also conceivable, as is any small or no settlement against this background.


See a example text here:


The shares of the Founders shall be subject to vesting.
The partial amount of shares to be redeemed is reduced by 1/XX for each full month after
[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text][__][/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]. Thus, the Founders’ shares vest completely (100% of their shares are vested) in case they keep up their active work for the Company until [/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text][__][/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text].(four-year-period)

In case of a Liquidation Event prior to [/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text][__][/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text] all Founders’ shares are deemed vested (Accelerated Vesting) with the effect being that redemption of share is not possible anymore. 25% of the shares of each Founder are deemed to be already vested due to the achievements during the Company’s incorporation and business building process. Therefore, only 75% of the Founders’ shares shall be subject to the four year vesting period as described above.