Vesting
What Vesting means, how it works, a worked example, the mistakes we see and the questions founders ask.
DefinitionVesting is the schedule over which an employee or founder earns the right to their ESOPs or shares, usually four years with a one-year cliff, so that equity is earned by staying and contributing.
Vesting means you do not own the equity you were promised until time passes or milestones are met. A standard startup schedule vests 25% after a one-year cliff and the balance monthly or quarterly over three more years; some plans add performance conditions. Unvested options lapse when you leave, and vested options must be exercised within the window the scheme sets, often 90 days after leaving or up to the exit for friendlier plans. Founders vest too: investors insist on it so that a departing co-founder does not keep a large stake. You meet vesting in every ESOP grant letter, in founder clauses of the shareholders agreement, and in acceleration clauses that speed it up on an acquisition. What it means for you: read the schedule, the exercise window and what happens on termination before you sign, because those three terms decide what the equity is worth.
How Vesting works
Vesting is a schedule written into an ESOP grant letter or a founder's clause in the SHA that converts a promise of equity into owned equity over time. The standard form is four years with a one-year cliff: nothing until the first anniversary, 25% on that date, and the balance in equal monthly or quarterly steps over the following 36 months. Variants include front-loaded or back-loaded schedules, three-year schedules for later-stage hires, and milestone vesting tied to revenue or product targets. Rule 12 of the Share Capital and Debentures Rules fixes a minimum of one year between grant and vesting for options.
For options, vesting creates the right to exercise; the employee still has to pay the exercise price within the exercise window to receive shares. Unvested options lapse on leaving and return to the pool, and vested options must be exercised within the period the scheme sets after leaving, commonly 90 days to a year, or in friendlier schemes until an exit. For founders, whose shares already exist, vesting runs in reverse: the SHA requires a founder who leaves to transfer unvested shares at par (or at a formula price for a good leaver) to the other founders or the company's nominee.
Acceleration clauses change the schedule on defined events. Single-trigger acceleration vests everything on an acquisition; double-trigger acceleration, which acquirers prefer, requires both an acquisition and a termination without cause within a period after it. Good-leaver and bad-leaver definitions decide whether a departing founder keeps vested shares at fair value or loses them at par, and are the most litigated words in a startup's documents.
A Bengaluru company's two founders hold 40,00,000 shares each at its seed round in 2026. The SHA puts those shares on a 36-month reverse vesting schedule with 12 months treated as served, so 13,33,333 shares per founder are vested at closing and 1,11,111 vest each month. When one founder resigns in March 2027 after 20 months, 22,22,222 of her shares are vested and the remaining 17,77,778 are transferred at ₹10 each to the continuing founder under the good-leaver clause, keeping the company's cap table intact for the Series A.
Mistakes we see with Vesting
- Agreeing to 90-day post-exit exercise windows, which force a leaving employee to pay exercise price and perquisite tax at once or forfeit vested options.
- Omitting founder vesting at incorporation, so a co-founder who leaves in month eight keeps a third of the company.
- Accepting single-trigger acceleration for senior hires, which acquirers discount in the price because the team can leave on day one.
- Treating the vesting date and the exercise as the same event; vested options are worthless if the exercise window has closed.
Last updated 19 October 2026. Checked against the MCA, GST, Income-tax and Trade Marks rules in force for October 2026.
Where you will meet this term
- ESOP Planning & StructuringPrivate Limited Companies that want to hire with equity: pool sizing, a scheme the board can approve, the MGT-14 filing and grants that hold up at exit.from ₹39,999
- Founders' AgreementCo-founders who want the split, vesting, roles, IP and leaver terms agreed in writing, with the share terms in the Articles so they bind the company.from ₹9,999
- CFO ServicesFunded startups and growing companies that need a finance head for a few hours a week: runway, board packs, budgets and fundraise support, without a full-time hire.from ₹24,999/month
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Questions founders ask about Vesting
What is a standard vesting schedule for Indian startups?
Four years with a one-year cliff for employees, vesting monthly or quarterly after the cliff. Founders typically vest over three or four years with credit for time already served, and investors expect at least 50% of founder shares to be unvested at a seed round.
What happens to vested options if I leave the company?
They remain yours for the exercise window the scheme sets, usually 90 days to 12 months after leaving, sometimes until an exit. You must pay the exercise price and the perquisite tax within that window to receive shares, otherwise the options lapse. Unvested options lapse on the leaving date.
Can vesting be accelerated?
Yes, if the scheme or the SHA provides for it. Common triggers are an acquisition (single trigger), an acquisition followed by termination without cause (double trigger), or death and disability. The board can also accelerate individual grants if the scheme gives it that discretion.