Meaning
Equity distribution schedules link the release of shares to the achievement of specific operational, financial, or product development targets. This milestone vesting aligns the incentives of the team with the execution of the business plan. The arrangement ensures that equity is earned through performance.
Performance Condition
The board of directors must approve the specific, measurable targets that trigger each tranche of shares. Under milestone vesting, the completion of a product prototype or the reaching of a revenue goal leads to the release of stock. This method prevents the early release of equity to underperforming team members.
Recording Requirement
Documenting the achievement of these goals requires written board consent and clear evidence of completion. The administrative process can consume fifteen hours of management time to compile the necessary reports and secure board signatures. These records must be preserved in the corporate minute book to prove that the shares were earned according to the contract.
Clear records prevent disputes over whether a target was met.
Equity Distribution
Successfully meeting these targets results in the permanent transfer of shares to the recipient. It increases the outstanding share count and decreases the remaining unallocated option pool. This transfer of ownership is final.
