This agreement applies vesting to shares a person already owns — reverse vesting — so that unvested shares can be bought back if that person leaves early. It is different from a stock option, where nothing is owned until exercise. Execute on stamp paper of the value prescribed in the State of execution.
Vesting Agreement
Reverse vesting of [FOUNDER / EMPLOYEE] shares
This agreement applies vesting to shares a person already owns — reverse vesting — so that unvested shares can be bought back if that person leaves early. It is different from a stock option, where nothing is owned until exercise. Execute on stamp paper of the value prescribed in the State of execution.
THIS VESTING AGREEMENT is made at [PLACE] on [DATE]
AMONG:
(1)[COMPANY NAME], a private limited company incorporated under the Companies Act, 2013, bearing CIN [CIN], having its registered office at [ADDRESS] (the "Company");
(2)[HOLDER NAME], [son / daughter of ______, aged ______ years], residing at [ADDRESS], holding PAN [PAN] (the "Holder"); and
(3)[OTHER FOUNDERS / INVESTOR], [particulars] (the "Continuing Shareholders"), for the purposes of Clauses 5 and 6.
Recitals
A.The Holder is the registered and beneficial owner of [NUMBER] equity shares of the Company of face value ₹ [FACE VALUE] each (the "Subject Shares"), acquired on [DATE] at a price of ₹ [PRICE] per share.
B.The Holder is engaged by the Company as [ROLE] and the Subject Shares were allotted in consideration of, and in expectation of, the Holder’s continued contribution to the Company.
C.The parties have agreed that the Subject Shares shall vest over time, and that unvested shares shall be liable to be repurchased if the Holder ceases to be engaged by the Company, on the terms set out below.
NOW THEREFORE the parties agree as follows:
1. Definitions
1.1In this Agreement:
"Cessation Date" means the date on which the Holder ceases to be engaged by the Company, being the last day of actual service and not the last day of any notice period unless the Holder works that notice.
"Cliff" means the period of [12] months from the Vesting Commencement Date.
"Change of Control" means a transaction or series of transactions resulting in a person, together with persons acting in concert, acquiring the power to direct the management and policies of the Company, or acquiring all or substantially all of its assets or undertaking.
"Fair Market Value" means the value determined in accordance with Clause 6.
"Repurchase Price" means, for unvested Subject Shares, the lower of the price paid by the Holder for those shares and their face value, and, for vested Subject Shares repurchased under Clause 4.3, the amount determined under that Clause.
"Vested Shares" means the Subject Shares that have vested under Clause 2, and "Unvested Shares" means the balance.
"Vesting Commencement Date" means [DATE], being [the date on which the Holder began providing services to the Company / the date of this Agreement].
2. Vesting
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These notes accompany the template and explain the drafting choices, the compliance points and the mistakes most often made with this document. They appear as a final page in the Word file, intended to be deleted before the document is executed.
Under an option, nothing is owned until exercise. Here the Holder already owns the shares, votes them and receives dividends on them; what the Company holds is a right to buy them back if the Holder leaves early. That distinction drives the tax treatment, the voting position, and what happens on death. Do not adapt an option scheme to do this job.
Reverse vesting on founder shares is standard, will be required by any institutional investor, and protects the founders from each other far more than it protects the investor. The founder who leaves in month nine holding a third of the company is the problem this solves. Applying it at incorporation, before there is any value, is straightforward; applying it retrospectively during a fundraise is not.
Clause 2.1(a). A founder who has worked for eighteen months before signing should not start from zero. Agree the credit explicitly and record the number of shares, not a percentage. This is the single most negotiated term in the agreement and the one most often left vague.
A twelve-month cliff means someone who leaves at month eleven takes nothing beyond the prior-service credit. That is the intended effect, and it should be explained to the Holder before signature rather than discovered afterwards. Clause 2.2 states it plainly for that reason.
A definition that makes any resignation a Bad Leaver event hands whoever controls the board the ability to strip vested shares by making the role intolerable. The Good Reason limb in Clause 4.4 is the counterweight and should not be removed. Equally, a definition limited to criminal conviction protects nobody. The drafting here sits deliberately between the two.
Clause 4.8 is the practical constraint. A company may buy its own shares only out of free reserves or securities premium, within the prescribed percentage limits, subject to a debt-equity test, and not more than once in a year. An early-stage company usually satisfies none of these. Identify in advance who actually funds the repurchase — the continuing founders, the investor, or a nominee — and make sure they are a party to this agreement.
A departing shareholder who declines to sign the transfer form can stall a repurchase indefinitely. Clause 4.7 solves this, and is drafted as an irrevocable power given by way of security so that it survives the Holder’s withdrawal of cooperation. Pair it with the escrow in Clause 4.9 where the amounts are significant.
Undated transfer forms and certificates held in escrow convert the repurchase from a negotiation into an administrative step. It costs almost nothing to set up and removes the single most common practical obstacle. Schedule 2 provides the terms.
Single-trigger acceleration vests shares on a change of control alone, which acquirers dislike because it removes the retention incentive at exactly the moment they need it. Double-trigger vests only if the Holder is also terminated after the transaction, which is fairer to both sides and is the more common structure. Many companies use a partial single trigger plus a full double trigger, as drafted in Clauses 5.1 and 5.2.
Clause 9.1. A repurchase right binds a transferee only if it is in the articles of association. Without that, a Holder who transfers shares in breach can leave the Company with a damages claim rather than the shares. Amend the articles and file the amendment.
The tax consequences of acquiring shares below fair market value, of vesting, and of a repurchase below value differ, and depend on whether the Holder is an employee. Clause 8.3 directs the Holder to take advice, and that direction should be taken seriously — a repurchase at face value of shares now worth considerably more can have consequences for both parties.
Duty on this agreement is State-specific. Duty on the transfer of shares on a repurchase is charged under the Indian Stamp Act, 1899 as amended, and the Form SH-4 must be stamped before execution. Where transfer forms are held undated in escrow, take advice on the correct stamping approach before depositing them.
Reflects Indian law current as of {{DATE OF USE}}. The buy-back constraints, the tax treatment and the stamping position should each be confirmed with counsel before execution.
This is a ready-to-use template provided for convenience. Laws and requirements change, and every situation is different — please have it reviewed by a qualified professional (a lawyer, company secretary, or chartered accountant as relevant) before you rely on it.