Founder vesting, India and US mechanics.

Founder vesting means founder equity is subject to a schedule where it 'earns' over time. If the founder leaves before equity is fully vested, the unvested portion is forfeited or bought back by the company. Protects the business and remaining team from a founder leaving early.

Standard schedule: 4-year vesting with 1-year cliff. Mechanics:

• Nothing vests in the first 12 months (the 'cliff').
• At month 13, 25% (one year of vesting) vests all at once (cliff vest).
• From month 13 onwards, 1/48th of total equity vests each month (uniform vesting).
• At month 48, 100% vested.

When applied: most commonly at Series A — even if founders previously held 'fully vested' shares. The investor terms require a vesting reset. Negotiate to carve out time already served ('credit for time served').

In Delaware C-Corp structure, founder vesting is typically implemented via restricted stock:

• Founder is issued restricted stock subject to a Stock Restriction Agreement.
• Each tranche of stock vests on schedule.
• If founder departs before full vesting, the company has a repurchase right over unvested shares at the original purchase price (typically USD 0.001/share — i.e., buyback at a nominal amount).

83(b) election — critical:

• Within 30 days of restricted stock grant, founder files IRS Form 8832 (83(b) election).
• Election locks in the fair market value AT GRANT as the taxable amount, regardless of future vesting.
• For founder restricted stock purchased at nominal value when FMV is also nominal (day-one incorporation), 83(b) locks in near-zero taxable amount.
• Without 83(b): when each tranche of vested shares becomes substantially non-restricted, founder recognises taxable ordinary income on the then-FMV of that tranche. In a successful startup, this can be a massive tax bill at each vesting tranche — often prohibitive.

Missing the 30-day 83(b) window is unrecoverable. Set reminders, file via Certified Mail, retain acknowledgement.

In Indian Pvt Ltd structure, founder vesting is typically implemented via a Share Purchase Agreement + Shareholder Agreement with vesting clauses:

• Founder holds equity shares outright.
• Shareholder Agreement specifies vesting schedule.
• If founder departs before full vesting, Indian investors have a call option to buy back the unvested shares at a predetermined price (often face value or nominal).

Tax at vesting:

• Equity shares already held: no tax at vesting event (unlike US restricted stock without 83(b)).
• Buy-back by company at founder departure: tax under Section 115QA post-Oct 2024 (buyback distribution tax reinstated).
• Sale by founder at exit (fully vested shares): LTCG at 12.5% (post-July 2024) if held 24+ months.

Indian structure is more tax-friendly than US without 83(b), but less flexible than US with 83(b) + QSBS.

Acceleration shortens or eliminates the vesting schedule under specific circumstances. Two main types:

Single-trigger acceleration on involuntary termination (fired without cause):

• If the company fires the founder without cause, all remaining unvested shares immediately vest.
• Founder-protective; limits investor-side moves to oust founders.
• Market standard: push for 50-100% single-trigger acceleration on involuntary termination.

Double-trigger acceleration on change of control + termination:

• If the company is acquired AND the founder is terminated post-acquisition (or founder resigns for good reason), all unvested shares immediately vest.
• Protects founders from forced-departure post-sale.
• Market standard: 100% double-trigger acceleration is widely accepted.

Full single-trigger on change of control alone (acceleration on sale regardless of termination): investor-hostile and typically rejected. Not market-standard.