Last updated: 2 November 2026
Vesting is earning equity over time. A cliff is an initial period with no vesting. Leaver terms decide what happens to vested and unvested equity if someone leaves.
What is vesting?
Vesting is the process by which a person earns the right to shares or options over time, so that equity is tied to staying with the company. It means equity is not fully earned on day one; it is earned by remaining involved with the business.
For founders it is usually reverse vesting: shares are issued up front and the company can buy back unvested ones if the founder leaves. In practice, a founder may hold shares from the start, but the company keeps a right over the unearned part until the schedule is complete.
That structure links reward to continued work. It also gives the company a mechanism to deal with a founder who leaves before the expected period has passed.
What is a cliff?
A cliff is a set period, usually one year, in which nothing vests. A person who leaves during the cliff loses all unvested equity. The cliff therefore creates an initial commitment period before any equity is earned.
The effect is simple: no equity is earned during that first year. If someone departs before the cliff date, they take no vested equity with them under the schedule.
This is why the first year matters so much in both founder and employee arrangements. It is the point at which the first meaningful block of equity becomes earned.
What is the standard schedule?
For employees at UK VC-backed private companies, options vest over four years in equal monthly tranches after a one-year cliff. That means 25% vests at the end of year one, then equal monthly tranches run to the end of year four.
Founders in VC deals also usually have four years with a one-year cliff: no equity vests in the first year, 25% vests after one year, and the remaining 75% vests monthly or quarterly over the next three years.
Take a worked example of 48,000 options. At the cliff at month 12, 12,000 vest. The remaining 36,000 vest over 36 months, which is 1,000 a month. At month 30, 12,000 plus 18 times 1,000 equals 30,000 vested, or 62.5%. In plain English, just over half of the options have been earned by month 30.
| Month | Vested options |
|---|---|
| 6 | 0 |
| 12 | 12,000 |
| 24 | 24,000 |
| 36 | 36,000 |
| 48 | 48,000 |
The table shows the cumulative position at selected points. Nothing has vested at month 6 because the cliff has not passed. By month 12 the first 25% has vested. By month 48 the full 48,000 options have vested.
What are good and bad leavers?
Good leavers, such as people leaving because of illness or death, or where employment is terminated without cause, keep vested shares and may get accelerated vesting on a change of control. This means a departure that is not the person’s choice, or is caused by serious circumstances, is treated more generously.
Bad leavers, such as those who resign voluntarily or are terminated for cause, may forfeit all or part of vested shares and can be forced to sell back at nominal value. The consequence can therefore be severe, including loss of value that had already been earned.
Another guide puts the split more broadly: bad leaver events typically include fraud and gross misconduct, while a good leaver is typically any other departure. On that view, unvested shares of a good leaver may convert to worthless deferred shares. Hunters Law LLP advises founders to seek clarity from investors regarding their expectations and obtain reasonable protections in the definitions of good and bad leavers.
What about acceleration?
Acceleration is when unvested equity vests early, typically on a change of control. Good leavers may receive accelerated vesting in change of control scenarios. This is one reason the leaver definitions matter so much: they can decide whether someone keeps, loses or accelerates unvested equity.
Our sources do not cover single or double trigger acceleration. They only state that accelerated vesting may apply in change of control scenarios for good leavers.
The practical point is that acceleration can change the value of a departure. It can allow unvested equity to become earned earlier than the normal schedule would allow.
UK tax angle
Vesting is often attached to EMI options. EMI options have a longer exercise window since 6 April 2026, up to 15 years for new options. Vesting and the exercise period are different things: vesting decides when equity is earned, while the exercise period decides how long an option can be exercised after it has vested.
Tax treatment depends on the facts, so readers should check HMRC guidance or take advice. The key distinction is that earning the right to exercise is not the same as having time to exercise.
Founder checklist
Founders should ask whether there is reverse vesting, what is vested at signing, what the leaver definitions are, whether acceleration applies, and who decides if someone is a good or bad leaver. These points are worth settling before signing, not after a departure.
In practice, the definitions and decision-maker can matter as much as the schedule itself. A founder should understand both the timetable and the consequences of leaving.
Frequently asked questions
What is the difference between vesting and a cliff?
Vesting is the process of earning equity over time. A cliff is the initial period, usually one year, in which nothing vests at all.
Do founders and employees usually use the same schedule?
Both commonly use four years with a one-year cliff. Employees usually have options vesting in equal monthly tranches, while founders in VC deals often have 25% after one year and the remaining 75% monthly or quarterly.
What happens to a good leaver’s unvested shares?
A good leaver keeps vested shares and may get accelerated vesting on a change of control. In some cases, unvested shares may convert to worthless deferred shares.
Can a bad leaver lose vested shares?
Yes. A bad leaver may forfeit all or part of vested shares and can be forced to sell back at nominal value.
Is vesting the same as the exercise period?
No. Vesting decides when equity is earned over time. The exercise period is how long an option can be exercised after it has vested. For EMI options, the exercise window can run up to 15 years for new options from 6 April 2026.
Sources
Figures and prices were checked on 2 November 2026; check the linked sources before relying on them. This article is general information, not tax, legal or investment advice.
