Evidentiary Thresholds for Oral Equity Promises in Corporate Disputes
Oral equity claims fail without definitive terms, corroborating conduct, or written evidence overriding statutory fraud bars.
unvested stock
Meaning
Equity shares that have been granted to an individual but cannot yet be sold or transferred until specific conditions are met. The status of unvested stock represents a future ownership claim that depends on the continued employment or the achievement of performance goals by the holder. It acts as a retention tool by aligning the long-term presence of a founder with the growth of the company.
The designation stops applying once the shares meet the vesting criteria and transfer fully to the owner.
Forfeiture Condition
Leaving a company before a milestone is reached usually results in the loss of these shares. Because unvested stock is contingent on a time-based schedule, the company can reclaim the equity if the relationship ends prematurely. This mechanism prevents a person from walking away with a large portion of the ownership after only a short period of service.
Vesting Schedule
Vesting follows a plan described in the grant agreement. Most plans for unvested stock use a four-year period with a one-year cliff where no shares vest until the first anniversary of the start date. After the cliff, the remaining shares move to the holder in monthly or quarterly increments.
Tax Implication
The value of the shares at the moment they become fully owned is treated as income by many tax authorities. Holders of unvested stock may choose to file a special election to pay taxes on the value at the time of the grant instead of the time of vesting. This choice reduces the tax burden if the share price increases significantly over the duration of the plan.
It requires a filing within thirty days of the initial grant to be valid under the law.