Ask HN: A question about vesting

https://news.ycombinator.com/item?id=640452

by zaidf • 17 years ago

3 4 17 years ago

news.ycombinator.com

Say me and a cofounder start a company. I decide to drop out. At that point, does my unvested stock goto the other cofounder or does it goto the company, TYPICALLY?

Also, if we have a board and I'm on it, do I still get to keep my board seat?

I always think about this hypothetically. Say a cofounder drops out. Other cofounder gets the company. But a month after getting the company, he sells the company for dirt cheap and gets to keep the dropout cofounder's unvested share AND his own share. Is that how it would work typically? Or is each vesting agreement very different?

brk2• 17 years ago

I am unclear if you are talking about bona-fide stock, or options.

If you have a stock grant with a vesting schedule, the vested shares become YOURS and are irrevocable, like pay. (and yes, I am speaking in the TYPICAL sense here, there are 1000 sub-possibilities).

If you have stock options, then as they vest you earn the right to purchase those shares at the strike price. If you buy them, they are yours. If you do not, those shares go back into the employee pool for potential re-allocation.

And I don't know if you have a specific case in mind, but if you have some "company" and one "cofounder" drops out, it's rather unlikely someone is going to come along and purchase anything for any price.

If your company is a real entity and was put together with even so little as templated "Let's Start a Company" kit from Staples, the specifics of this are likely covered in some manner in the incorporation docs.

zaidf• 17 years ago

Let me make it more clear:

- assume that a company is worth X amount, meaning there is an offer for X amount.

- let's say that both founders decide not to sell it.

- for some reason, founder 1 decides to quit. 50% of his shares have vested. other 50% have not.

- does the unvested stake from cofounder 1 goto the company or the other cofounder?

what i'm getting to is if the cofounder that did not leave sells the company for 100 bucks, and let's say he had 50% stake before cofounder 1 left, how much of the 100 bucks do each founder get? cofounder 1 at the time he left had 50% of his shares vested...meaning he owns 25% of the company.

brk2• 17 years ago

It would depend on how the unallocated shares are handled.

Let's say you issued 1000 shares of stock upon incorporation. It does not matter how we got there, but you end up with 1 person owns 500 of those shares, another person owns 250, and the remain 250 are still owned by the corporation itself.

When a corporation is "bought", the general concept is that some new entity is buying all the shares from the current share owners. They can do this with cash, or they can do it with stock, where you get shares of stock in the new company in return for your shares of stock in the existing company.

In your case you're obviously talking about a cash sale.

A corporation exists separately from the share holders. One person cannot really sell they company, all they can really do is make a proposal for all the share holders to vote on. Of course, if that person has a majority control position, their "proposal" is basically a statement.

So the person with 500 shares could sell HIS shares, and make a proposal to sell the unallocated shares for some net amount (we'll say $75). The person with 250 shares would end up with:

250 shares and no net change (there is just a change of control). This scenario is similar to what happened with Craigslist where an employee sold their 25% stake to ebay. Granted this was not a majority control scenario.

More than likely the first person was looking for some kind of exit, and the new owners don't want to be left with any hangers-on, so the "proposal" would be that the new company can buy back shares from existing share holders at a set price, and you get a check for $25.

Or it could be that the proposal is the $100 is divided among ALLOCATED shares, and you get $33.3 and the person with 500 shares gets $66.6.

More than likely though, it's none of the above. When you buy a company, you also buy that companies liabilities and commitments. Many times all that the acquiring company REALLY wants is the customer base, or some piece of intellectual property. So the "proposal" is basically:

Incorporate under a new name, with existing share holders remaining with the same stock

Sell the intellectual property and old company name to the new company for a set price (we'll use your $100 number).

You are left with: a shell corporation that has no assets or value (likely) BUT has retained any debt or liability. This allows the new corporation to expedite the "purchase" process without having to worry that they are inheriting some unknown liability.

As for the $100, the majority shareholder could "propose" that the entire amount be paid to him as a bonus of some sort, or could propose to dissolve the company and divide any assets among share holders, or any number of other things.

kynikos• 17 years ago

Typically they go back into the equity pool of the company as a whole. Whether or not you get to keep your board seat is dependent on how the corporation and your employment agreements are structured. There is no one-size-fits-all answer to these questions, the solutions are unique to each situation.

Ask HN: A question about vesting

Related Stories