Meaning
Equity earning criteria define the specific temporal milestones or performance targets required for individuals to gain full ownership of granted equity securities. Incorporating vesting conditions into employment and founder agreements aligns long-term retention with company value creation by holding unvested shares in escrow. These provisions govern founder stock, employee stock options and advisor equity allocations.
They apply continuously from the grant date until all shares vest or until service terminates, which triggers share repurchase options.
Schedule Mechanics
Time-based cliff periods and monthly accrual increments form the baseline architecture of equity earning schedules. Standard vesting conditions mandate twelve months of continuous service before any stock earns ownership rights, followed by linear monthly vesting over three additional years. Performance-based vesting conditions tie ownership accrual to quantifiable revenue goals or product launch benchmarks.
Acceleration Triggers
Specific corporate events alter standard earning timelines upon executive termination or company acquisition. Double-trigger acceleration clause structures require both a change of corporate control and involuntary termination without cause to vest remaining unvested shares immediately. Ambiguous contract drafting regarding acceleration definitions leads to costly disputes during acquisition negotiations.
Forfeiture Record
Accurate documentation of termination dates and unvested share repurchases protects corporate equity integrity. When service providers depart before full vesting occurs, management must execute formal stock repurchase notices and update cap tables promptly. Contemporaneous forfeiture records prevent former team members from asserting invalid equity ownership claims years after departure.
