Nowadays, vesting clauses are an indispensable part of financing rounds, participation agreements and employee participation programs in the startup scene.

Whether founders, minority shareholders, new employees or cooperation partners – everyone can be affected.

These clauses, which originated in the US, have also found their way into Liechtenstein and are of great importance for investors and companies. It is crucial that they are legally secure in order to avoid later conflicts.

With this in mind, this blog post provides an overview of the key terms and concepts of vesting:

1. What is vesting?

Vesting can be structured differently depending on the application.

In the case of founder vesting, a founder must transfer all or part of his shares to the other shareholders, for example, if he leaves the company (prematurely).

However, vesting can also be implemented for employees who are to receive a stake in the company as part of a VSOP (Virtual Stock Option Plan) or ESOP (Employee Stock Option Plan) by working for the company for a certain period of time. In non-technical and simplified terms, they accumulate shares over time as long as they work for the company. These shares can either be “virtual” shares within the meaning of the VSOP or an entitlement to the subsequent acquisition of real shares in the company under the ESOP.

2. Why is vesting agreed upon?

Vesting clauses are relevant for both investors and the company itself.

Investors want to tie the founders and key employees to the company for a certain period of time after acquiring their stake, as the success of a company (especially a start-up) depends heavily on their expertise. If these people were able to leave the company immediately after acquiring the stake, the investors would be left empty-handed, figuratively speaking.

Founders may also have an interest in binding their co-founders and key employees to the company for a minimum period of time through employee participation programs including vesting.

3. Cliff period

A cliff period (usually 6 – 24 months) is a contractual agreement that is often agreed in connection with vesting and covers a period that is shorter than the vesting period. Depending on the structure of the vesting, the founder can keep (part of) his shares after the end of the cliff period or an employee can actually acquire the shares saved up during his employment as part of his ESOP. In the event of termination during the cliff period, the employee does not receive any shares, even though he has already worked for the company for some time.

The background to such an agreement is again to bind the founders and/or employees to the company for a minimum period (cliff period).

4. Conclusion

Vesting clauses are essential for start-ups and their investors in order to bind founders and key employees to the company in the long term. By collecting shares on a monthly basis, for example, those affected earn their stake over a fixed period of time.

Legally secure vesting clauses prevent conflicts and ensure that all parties involved can protect their interests.

Get started with us right now and contact us at office@isp.law or use our fully automated booking tool to make an appointment for an initial consultation directly at https://www.isp.law/termin-buchen/ to find out more about vesting and your options in this regard.

We do not assume any liability for the accuracy of the legal content on this website or that the content is up-to-date, especially as these contents do not constitute legal advice and are not suitable to replace legal advice in specific cases. If you have any questions, Inmann Stelzl & Partner Attorneys at Law Partnership is always available to assist you.

Author: Christian Inmann, Markus Stelzl

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