Founder vesting agreements: what every Irish startup needs
By Dylan Holland, Founder, OnlineLegalServices.ie
If you incorporated an Irish company with a co-founder and you have not implemented founder vesting, you are running unprotected. The single most-common cap-table problem we clean up at OnlineLegalServices.ie is a co-founder who left after six or twelve months of work, kept their full equity stake, and is now sitting on the cap table as dead weight that future investors require to be cleaned up. The cost of preventing this with proper vesting at incorporation is in the hundreds of euros. The cost of unwinding it at fundraising or exit time is in the tens of thousands.
What is founder vesting?
Founder vesting is a contractual mechanism by which a founder’s shares — though formally issued and held in their name — are subject to repurchase by the company at nominal value if the founder leaves before a defined period elapses. The shares “vest” pro-rata as time passes, until at the end of the vesting period the founder owns them outright with no repurchase risk. The standard pattern, borrowed from US venture practice and now ubiquitous in Irish venture transactions, is four years with a one-year cliff: zero shares vest in the first 12 months, then monthly vesting over the following 36 months.
Why founder vesting exists
Three concrete failure modes that founder vesting prevents. First: a 50/50 co-founder partnership where one founder leaves after six months because the relationship is not working out, and the other founder is left running the company alone but holding only 50% of the equity — with the absent co-founder still holding the other 50%. Second: a co-founder who is asked to leave for performance reasons but cannot be parted from their unearned equity. Third: an investor evaluating the company for a Series Seed round who refuses to invest because the cap table includes a passive founder with no current involvement.
All three are entirely preventable with vesting at incorporation. Our co-founder equity split review picks up vesting gaps as part of the broader cap-table assessment.
The four-year, one-year-cliff standard
The vesting pattern that Irish (and global) venture investors expect is four years with a one-year cliff. This means: from the day the founder is granted their shares (typically incorporation), no shares vest for the first 12 months. At the end of month 12, 25% of the shares vest in a single block (the “cliff”). From month 13 onwards, the remaining 75% vest in 36 equal monthly tranches. By month 48, the founder owns all their shares free and clear.
Some Irish founders (particularly second-time entrepreneurs) negotiate harder schedules — three years with no cliff, or two years with a six-month cliff — but the four-year standard is the venture default and is the easiest to defend at fundraising time.
Acceleration mechanics
Vesting normally accelerates on certain trigger events. The two patterns are single-trigger acceleration — vesting completes in full immediately on change of control — and double-trigger acceleration — vesting completes on change of control AND involuntary termination of the founder within 12 months of the change. Investors generally prefer double-trigger because it preserves founder retention through the post-acquisition integration period; founders generally prefer single-trigger because it crystallises their equity at sale. The market default in Irish venture is double-trigger.
Good leaver vs bad leaver
The most-contested drafting point in any vesting agreement. The framework: a good leaver retains all vested shares at fair market value; a bad leaver retains all vested shares but at nominal value. Unvested shares are repurchased by the company at nominal value in either case.
What constitutes a good leaver typically: death, permanent disability, retirement at agreed age, mutually-agreed departure, and termination without cause. What constitutes a bad leaver typically: voluntary resignation pre-vesting completion, termination for cause (including breach of restrictive covenants), and material misconduct. The boundary between “termination without cause” (good) and “termination for cause” (bad) is where founder vesting agreements get litigated, so the drafting of “cause” needs to be specific and reviewable.
Vesting and the Shareholders Agreement
Founder vesting is typically implemented inside the broader Founder Shareholders Agreement, not as a standalone document. The reason: vesting interacts with the Shareholders Agreement’s pre-emption, transfer-restriction, and drag-along provisions, so drafting the two together avoids the conflicts that arise when vesting is bolted onto an existing agreement later. Our standalone Founders Shareholders Agreement page covers the broader document.
Implementing vesting at incorporation
The cleanest pattern: at incorporation, the founders sign a Founder Shareholders Agreement that includes vesting terms. The vesting is a contractual overlay on the issued shares — the shares are formally issued in the founder’s name, but the founder agrees by contract that on a leaver event, unvested shares can be bought back by the company at nominal value. The implementation requires no special CRO filing, no separate share class, and no immediate tax event for the founder.
Retrofitting vesting onto issued shares
For founders whose shares were issued at incorporation without vesting, retrofitting is possible but requires a separate negotiated step. The founders sign an amendment to the Shareholders Agreement (or, if no Shareholders Agreement exists, a new one) introducing vesting terms going forward. The vesting clock typically starts at the date of the amendment, not at incorporation — although some founders negotiate backdated vesting to the original incorporation date as part of a pre-fundraise cleanup.
The tax treatment of retrofit vesting needs to be reviewed case-by-case. Typically there is no immediate tax event for the founder because the share value at the date of the amendment is the same as the share value immediately before the amendment — but specific facts (recent funding rounds, pending acquisition) can change that. Our vesting agreement pack handles retrofit vesting at fixed-fee.
Founder vesting and KEEP options
Founder vesting and KEEP are different regimes for different equity types. Founder vesting governs the founders’ own shares — typically ordinary shares issued at incorporation. KEEP governs share options granted to qualifying employees post-incorporation. Founders sometimes confuse the two and try to apply KEEP-style tax-deferral mechanics to their own founder shares; the regimes are not interchangeable. Founders who want to retain favourable tax treatment on founder shares typically rely on Entrepreneur Relief (10% CGT rate on first €1 million of qualifying gain) or, for very-early-stage founders, on simply holding shares for the long-term CGT period. Our KEEP scheme guide covers the option-grant regime separately.
Common drafting traps
Three patterns. First: vague leaver definitions that turn every separation into a disputed event. Second: non-uniform vesting between founders — different schedules, different cliffs, different acceleration mechanics — that create perverse incentives. Third: failure to coordinate vesting with the company’s constitution, particularly around the ability of the company to repurchase its own shares; some older Irish constitutions do not authorise share buyback and require a constitutional amendment before vesting can operate.
Frequently asked questions
Can you retrofit vesting onto founder shares that are already issued?
Yes — but the legal mechanics are slightly different from vesting at incorporation. Retrofit vesting is implemented through a Shareholders Agreement (or amendment to an existing one) that contractually obliges the founders to transfer back unvested shares to the company on a leaver event. The shares themselves remain issued; the vesting overlay is a contract between shareholders. Tax treatment of the retrofit needs review case-by-case — typically there is no immediate tax event but specific facts can change that.
What is the standard founder vesting schedule in Ireland?
Four years with a one-year cliff is the venture-default and the most-common pattern in Irish startup transactions: until the cliff date, the founder vests zero shares; from the cliff onward, monthly vesting over the remaining 36 months. Acceleration on change of control is increasingly standard for venture-backed companies — typically double-trigger acceleration (change of control plus involuntary termination within 12 months).
What is the difference between good leaver and bad leaver in vesting?
A good leaver is a founder who departs in circumstances the parties have agreed to treat favourably — typically death, permanent disability, mutually-agreed departure, and termination without cause. Good leavers keep their already-vested shares at fair market value. A bad leaver is a founder whose departure is not in good standing — typically voluntary resignation before vesting completes or dismissal for cause. Bad leavers are bought back at nominal value. Drafting the line between good and bad leaver is the most-contested part of any founder vesting agreement.
Do investors require founder vesting in Ireland?
Yes — almost every priced equity round in Ireland from Series Seed onwards includes founder vesting as a condition. Investors require it because their investment depends on the founders staying with the company; without vesting, a founder who walks away after six months keeps their full stake and dilutes the investor on every subsequent round. Founders who already have vesting in place before fundraising start the conversation from a stronger position.
Can a single founder use vesting?
Technically yes, but it is unusual. Vesting is primarily a coordination tool between multiple founders and between founders and investors. A single founder with no co-founders and no external investors has no counterparty for the vesting contract. The exception is solo founders preparing for a fundraise: investors will typically require vesting to be applied retroactively, so solo founders sometimes implement vesting pre-emptively to streamline the term-sheet conversation.
Get your founder vesting in place
If you incorporated an Irish company with a co-founder in the last 24 months and you have not implemented founder vesting, this is the single highest-leverage legal step you can take this quarter. Our vesting agreement pack implements vesting at fixed-fee, or book a 30-minute startup-shares advice call to walk through your specific cap-table first. All pricing is published — no retainer, no hourly meter.
By Dylan Holland, Founder, OnlineLegalServices.ie / PLUSOLS LIMITED.
Reviewed by a qualified Irish solicitor regulated by the Law Society of Ireland. This article is general legal information for Irish startup founders and is not a substitute for advice on a specific matter. Pricing on linked product pages is current at the date of publication; please refer to the linked page for the live rate.
