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Accelerated Vesting: A Comprehensive Guide to Its Legal Definition
Definition & Meaning
Accelerated vesting refers to a process where an individual gains ownership of their stock options or shares at a faster rate than originally outlined in their agreement. This typically applies to founders or employees in a startup, allowing them to secure their unvested shares more quickly. Accelerated vesting can occur for part or all of the unvested stock options, depending on the terms set forth in the stock purchase or stock option agreement.
Table of content
Legal Use & context
Accelerated vesting is commonly used in employment agreements, particularly within startups and tech companies. It is a significant aspect of equity compensation and is often negotiated during the hiring process or when a company undergoes significant changes, such as mergers or acquisitions. Understanding accelerated vesting is crucial for both employees and employers, as it can impact financial outcomes and employee retention.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A startup employee has a four-year vesting schedule for their stock options. If the company is acquired after two years, the agreement may include a double trigger clause that allows for accelerated vesting of all unvested shares, enabling the employee to own their full allocation immediately.
Example 2: A founder's agreement may stipulate single trigger acceleration if they are terminated without cause, allowing them to keep a portion of their unvested shares immediately. (hypothetical example)
State-by-state differences
Examples of state differences (not exhaustive):
State
Vesting Regulations
California
Commonly includes provisions for accelerated vesting in tech startups.
New York
May have specific labor laws affecting vesting agreements.
Texas
Generally follows standard practices without specific state laws.
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
Comparison with related terms
Term
Definition
Difference
Vesting
The process of earning ownership of stock options over time.
Accelerated vesting allows for faster ownership compared to standard vesting schedules.
Single Trigger Acceleration
Ownership is granted upon one specific event.
Accelerated vesting can include single or double trigger events.
Double Trigger Acceleration
Ownership is granted upon two specific events occurring.
This is a type of accelerated vesting that may provide more security for employees.
Common misunderstandings
What to do if this term applies to you
If you are an employee or founder and believe accelerated vesting may apply to your situation, review your stock option or purchase agreement carefully. Look for clauses related to vesting and any trigger events. If you have questions or need assistance, consider consulting a legal professional. Additionally, you can explore US Legal Forms for templates that may help you understand or manage your agreements effectively.
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Common trigger events: Company acquisition, termination without cause.
Types of acceleration: Single trigger and double trigger.
Key takeaways
Frequently asked questions
Single trigger acceleration occurs with one event, while double trigger requires two events to activate accelerated vesting.
Yes, many aspects of employment agreements, including vesting terms, can be negotiated.
If you leave the company before your shares are vested, you typically lose the right to those unvested shares unless your agreement specifies otherwise.