Equity vesting agreement red flags

Equity Vesting Agreement Red Flags: What to Look for Before Signing

Equity can be valuable, but vesting language decides when you actually keep it and what the company can buy back if you leave. The headline percentage is only the start.

Use this page before accepting founder, advisor, employee, or contractor equity. Load an equity vesting sample into TermsHuman or paste your own clause to see what could reduce your ownership.

Analyze an equity vesting sample Read FAQ

Quick answer

Equity vesting risk lives in timing, repurchase rights, and exits

Review equity vesting agreements for vesting schedule, cliff, acceleration, termination treatment, repurchase rights, bad leaver terms, exercise windows, tax elections, dilution, and transfer limits.

What to check first

Translate the equity grant into dates, conditions, and exit outcomes.

  • Vesting start date, cliff, monthly or quarterly vesting, and full vesting date.
  • Single-trigger or double-trigger acceleration on sale, termination, or role change.
  • Repurchase rights, forfeiture, bad leaver definitions, and price formulas.
  • Option exercise windows, early exercise, tax elections, and expiration dates.
  • Transfer limits, dilution, information rights, drag-along duties, and amendment rights.

Common equity vesting red flags

The same ownership percentage can mean very different things depending on vesting and repurchase terms.

  • No acceleration if the company is sold or you are terminated after a sale.
  • Company can repurchase vested shares cheaply after you leave.
  • Bad leaver language is broad or triggered by minor disputes.
  • Vesting starts later than expected or depends on unclear milestones.
  • Tax deadlines or exercise costs are not explained before signing.

Before you sign

Ask for a timeline that shows exactly what you own at each milestone and exit event.

  • Confirm the vesting commencement date in writing.
  • Model what happens if you leave before and after the cliff.
  • Ask a tax professional about election and exercise deadlines.

Equity vesting agreement FAQ

What is a vesting cliff?

A cliff is a period before any equity vests. With a one-year cliff, leaving before the first anniversary may mean keeping none of the equity.

What is acceleration?

Acceleration makes some or all unvested equity vest earlier, often after a sale of the company, termination without cause, or both.

Can vested shares be repurchased?

Some agreements allow repurchase of vested shares after termination or certain events. The price and triggers are critical.

What is a bad leaver clause?

It defines situations where a departing holder loses equity rights or faces harsher repurchase terms. Broad definitions deserve careful review.

Does TermsHuman give tax advice on equity?

No. It can explain contract language and risk patterns, but tax choices such as elections and exercise timing need professional advice.