Change of Control Vesting - Explained
Vesting Schedule and Later Rounds of Equity Funding
If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.
- Marketing, Advertising, Sales & PR
- Accounting, Taxation, and Reporting
- Professionalism & Career Development
Law, Transactions, & Risk Management
Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
- Business Management & Operations
- Economics, Finance, & Analytics
Table of ContentsWhat is Change of Control Vesting Provision? Limitations on the Change of Control Vesting Provisions?
What is Change of Control Vesting Provision?
The founders may want all unvested shares to vest at the time of investment in order to add increased certainty to the capitalization calculation. This is known as a change-of-control vesting provision.
It is triggered when either the business is sold or equity investors acquire a controlling interest in the company.
This provision protects the founders in the event that the investors influence will seek or cause the founder to leave the business.
Back to: Entrepreneurship
Investors do not favor these provisions, as it may diminish the incentive that the founders have in working for the business.
The corporation may need to offer options or some form of earn-out arrangement to incentivize the continued performance of these founder employees.
Limitations on the Change of Control Vesting Provisions?
Investors will also argue for increased stipulations on the change-of-control vesting provision. For example, the investor may include a requirement that the founder is fired without cause or that the conditions effectively force the founder out of the business within a stated period following the change of control.
Effectively forcing out a founder/employee is known as Constructive Termination.
- Note: Expect investors to force a vesting schedule onto founders as a condition at the time of financing.
Back to: Business Transactions