What is share vesting and should it be in my shareholder agreement?

Share vesting is a mechanism where a shareholder earns their full ownership over time or upon hitting certain milestones, rather than receiving all shares outright on day one. If a vested shareholder leaves before completing the vesting schedule, the unvested portion of their shares is forfeited or purchased back at a nominal price.

For Ontario startups and closely held businesses where co-founders are contributing their time and effort, vesting protects the remaining founders from a situation where one person leaves early but walks away with a full stake. Without vesting, a co-founder who exits six months in might keep the same percentage as someone who stayed for years.

Vesting schedules are negotiated and set out in the shareholder agreement (or in a separate founders' agreement referenced by it). A common structure is a one-year cliff — no shares vest until the first anniversary — followed by monthly vesting over the next few years, though the specifics vary widely. For Ontario corporations, share repurchase mechanics must also comply with the Ontario Business Corporations Act's rules on share redemptions and solvency. A corporate lawyer can help structure a vesting arrangement that achieves your goals while meeting these requirements.