Monday, 01 April 2024 03:11

Vesting: What is it and how is it regulated in a partnership agreement?

Written by Karla Gutiérrez

Many people have started their businesses together with other partners and most probably along the way one or more of the partners have decided to leave the company and have asked for all their shares, resulting in the company collapsing and people were left in debt.

But here we bring you an option so that this situation does not happen again, we are talking about vesting.

Vesting is a process in which the partners of a company gradually gain their rights to the shares or the company over time, that is, if the partners leave, they can leave with the shares they were able to obtain during the time they were working, this is called vesting period.

Through vesting, objective metrics can be obtained about the contributions of each partner in relation to the performance of their functions in the company, as well as the time and dedication invested in the project. It can even be a motivating element for the partners, so that they continue working and contributing value to the startup. As time goes by in a startup, it will increase in value and, thanks to vesting, the partners will consolidate or mature their percentage of participation in the company.

For example, a partner with 30% of the company subject to a 4-year vesting (with a one-year grace period): the first year he will consolidate 7.5% and then consolidate a proportional percentage every month for 3 years until completing the remaining 22.5%.

However, it is normal that if a partner leaves the company before one year has elapsed, he has not consolidated any percentage of participation and will therefore leave with 0% of the company. Therefore, it is important to determine from when we are going to count the permanence commitment of each partner in the project.



Translated by: A.M