Founder vesting: Georgian + Western norms

Founder vesting is a contractual mechanism where founders receive their equity not all at once, but gradually over time — typically four years, with a one-year cliff. If a founder leaves before the cliff, they keep nothing. If they leave after, they keep what's vested and forfeit the rest back to the company.

It is the single piece of paperwork that prevents the most painful failure mode in early-stage companies: a co-founder leaves at month six with 50% of the equity locked up forever, and the remaining founders can't raise because no investor will fund a cap table with a stranger owning half of it.

Why investors insist

At a priced round, every VC and most angels will require founder vesting as a closing condition. Their reasoning is mechanical:

• The money they're investing assumes the founding team is still working in two years.
• If a co-founder walks, their unvested shares need to be available to recruit a replacement.
• Without vesting, a departed founder's stake is dead weight on the cap table — they don't work, they don't sell, they collect on someone else's exit.

This is non-negotiable in practice. NVCA Model Legal Documents — founder vesting — nvca

The Western standard

The default schedule:

• 4-year vest — equity vests linearly across 48 months
• 1-year cliff — nothing vests until month 12. At month 12, 25% vests in a single block. Months 13–48 vest 1/48 monthly.
• No acceleration by default, with optional double-trigger acceleration on change of control (acquisition + termination)

The cliff is the most important number. It is the "are you actually going to do this" gate. A founder who leaves at month 11 keeps zero shares — that's the design. Cooley GO — Founder vesting basics — cooley-go

A common founder concern: "I've been working on this for two years before incorporation; why does my clock restart?" Answer: it doesn't have to. The vesting agreement can credit time worked before incorporation as already-vested. This is called "vesting credit for prior service" and is standard for founder vesting at a priced round. Ask for it.

What "for cause" means

If a founder is fired for cause, they typically forfeit even their vested shares. If they leave or are fired without cause, they keep what's vested.

The definition of "cause" varies. Tight definitions cover material breach of duties, commission of a felony, prolonged refusal to perform duties. Loose definitions let the board fire any founder for any reason and claim it was for cause. Watch the definition carefully — it determines whether your worst day is bad or catastrophic.

Vesting in a Georgian LLC

Georgian Labor Code (matsne.gov.ge, შრომის კოდექსი) governs the employment relationship between the company and the founder. Vesting itself is a corporate-governance / shareholders-agreement instrument, not a labor instrument. The structure works in Georgia, but with some friction:

• Mechanism. In an LLC, vesting is typically implemented through a share-purchase right with reverse-vesting: the founder purchases all their shares upfront for nominal value, and the company holds a buy-back option on unvested shares at the original purchase price.
• Tax treatment. Georgian tax treatment of share vesting is less developed than US §83(b) elections. The 15% deferred corporate tax model means there's typically no immediate tax event on grant, but distributions or share dispositions will be taxed.
• Enforceability. Buy-back rights are enforceable under Georgian contract law, but the courts have less precedent on edge cases (a departing founder who refuses to transfer back the unvested shares). Document carefully.

For Georgian-only companies with Georgian-only investors, a well-drafted Georgian vesting agreement is fine. For any company that will eventually take Western money, structure the vesting to be portable to a Delaware C-Corp — the flip should preserve the existing vesting schedule, not reset it.

The §83(b) election (Delaware C-Corp founders)

If you incorporate as a Delaware C-Corp (or flip to one), you'll be granted restricted stock subject to vesting. By default, the IRS treats each vesting tranche as ordinary income at the then-current fair-market value. For a founder, this can be a massive tax bill on shares you can't yet sell.

The fix is the §83(b) election — a one-page filing with the IRS within 30 days of grant. It tells the IRS you elect to be taxed on the full value of the restricted stock at grant rather than at each vesting milestone. For founder stock granted at near-zero value, the tax bill at grant is near-zero, and all future appreciation is taxed as capital gains at exit.

Miss the 30-day window and you cannot file it later. This is the single most common avoidable mistake for non-US founders dealing with a Delaware C-Corp. Cooley GO — §83(b) elections — cooley-go

The most painful failure mode

A two-founder company without vesting:

• Month 1: split 50/50, "we're friends, we don't need this paperwork"
• Month 4: co-founder finds out the work is harder than expected, stops showing up
• Month 6: co-founder formally leaves, takes a job at a bank
• Month 9: remaining founder pitches investors; first question: "who owns 50% and why?"
• Month 12: remaining founder either (a) gives up, (b) negotiates a painful, expensive equity buyback, or (c) starts over with a new entity and re-platforms everything

This is preventable with one document signed on day one. The document is uncomfortable to talk about ("we trust each other, why are we contracting against this?") and exactly because of that, it's the most important conversation founders avoid having.

When to set it up

Day one. The moment you incorporate, before you write a line of code together. The cost of doing it then is one uncomfortable conversation. The cost of doing it after a founder leaves is the company.

If you didn't do it on day one and you're still pre-funding, do it before the next priced round — investors will require it anyway, and unilaterally adopting it before they ask is a stronger position than capitulating to it later. Y Combinator — Founder agreements — yc

Take this to your attorney

The paired one-pager has the questions to bring. Don't bring it after a co-founder dispute; bring it the week you incorporate.