Tech startups usually grant shares subject to vesting conditions (or use options) in order to solve the problem of a founder leaving and taking their shares with them. The shares are either issued immediately subject to the company buying the shares back later under certain conditions (a reverse vesting agreement) or are granted over time (a vesting agreement).
Vesting or Reverse Vesting Agreement?
The decision as to vesting vs. reverse vesting is largely tax-driven but granting shares immediately may make stakeholders feel like they're more of a team (there's a big emotional aspect to starting a company). In Canada, the potentially massive tax advantage to getting shares upfront (i.e. reverse vesting) is taking advantage of the $750k lifetime capital gains exemption for CCPCs (talk to your accountant).
What Terms Should Go in the Vesting Agreement?
Here are a few possible provisions for a vesting agreement (talk to your lawyer about what's appropriate for you):
1. For a developer, accelerated vesting if they develop certain features (e.g. release of iOS app with features X, Y, Z that is downloaded by >1000 users within six months)
2. For a salesperson, accelerated vesting if they hit certain sales targets (e.g. monthly recurring revenue > $10k)
3. For an employee, company has the right to buyback shares if they become an employee elsewhere, are fired or quit
4. For an employee, accelerated vesting (full or partial) if the company is acquired
5. For someone making important sacrifices/concessions, a shorter "cliff" period
6. For a key co-founder, a fraction of their shares are immediately vested
7. For a co-founder who's investing, a fraction of their shares are immediately vested (see next provision)
8. For an investor, no vesting (if they don’t get the shares then what are they buying?)
9. Higher or lower fraction of the person's shares vesting after the cliff (25% is typical)
10. Annual vs. monthly vesting (e.g. 36% on the anniversary date rather than 3% per month)
11. A voting trust that takes away the right to vote unvested shares (legally complex, affects governance of company)
12. Restrictions on selling shares post-IPO (unlikely to be a big concern given how few tech companies IPO)
13. For an employee, acceleration on involuntary termination of all or part of their unvested shares (the concern: employee might cause their own termination)
Consider that less is usually better for a very early-stage tech startup. It's very hard to anticipate the future and a complex vesting agreement could cause problems down the road.