Vesting: Meaning and Definition in Law
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Vesting means that a right has become established or earned; whether it can later be lost depends on the kind of right and the applicable law or agreement. In employment, unvested equity or employer retirement contributions can usually be forfeited if you leave; once vested, they cannot be taken away for leaving, although other terms of the plan or agreement still apply.
Vesting in startup equity, retirement plans and property law, with schedules, cliffs and acceleration explained.
Last updated 28 October 2026
What vesting means in plain English
In property law, a remainder is vested when its holder is identified and no condition precedent other than the end of the preceding estate remains; some vested remainders can still be divested by a later event. In business, vesting usually describes earning something over time: shares, stock options or employer retirement contributions are promised up front but become the holder's outright only as service continues or milestones are met.
Vested means the right can no longer be forfeited because you leave, though it may still be subject to other terms, such as an option exercise deadline or a company right of first refusal. Unvested means the right is still conditional and is typically forfeited, or repurchased by the company, if the condition is not met.
Equity vesting: schedules, cliffs and acceleration
A common pattern for US startup employees and founders is four-year vesting with a one-year cliff:
| Time from vesting start date | Portion vested | Example: grant of 48,000 options |
|---|---|---|
| Before 12 months | 0% | 0 |
| At 12 months (the cliff) | 25% | 12,000 |
| Each month after that | A further 1/48 | 1,000 more each month |
| At 48 months | 100% | 48,000 |
- Cliff: nothing vests until the cliff date. If service ends before it, the whole grant is usually forfeited.
- Time-based vs milestone vesting: vesting can depend on continued service, on performance milestones such as revenue or a product launch, or on both.
- Single-trigger acceleration vests some or all unvested equity on one event, usually a sale of the company. Double-trigger acceleration needs two events, typically a sale plus a termination without cause (or resignation for good reason) within a set period afterwards.
- Founder reverse vesting: founders who own their shares from day one often agree that the company may buy back unvested shares, usually at the original price, if they leave. In the US, a holder of restricted stock often considers a Section 83(b) election, which must be filed with the IRS within 30 days after the shares are transferred.
Typical vesting language in an option agreement:
The Option shall vest as to 25% of the Shares on the first anniversary of the Vesting Commencement Date and as to 1/48th of the Shares on the corresponding day of each month thereafter, so that the Option is fully vested on the fourth anniversary of the Vesting Commencement Date, subject in each case to the Optionee's Continuous Service through the applicable vesting date.
Retirement plan vesting
In US qualified retirement plans, your own contributions, such as 401(k) salary deferrals, are always 100% vested. Employer contributions can vest over time. For defined contribution plans, the slowest schedules federal law allows (Internal Revenue Code §411 and ERISA) are a 3-year cliff (0% until 3 years of service, then 100%) or a 6-year graded schedule (20% after 2 years, rising 20% a year to 100% after 6). Traditional defined benefit plans generally may use a 5-year cliff or a 3-to-7-year graded schedule; cash-balance and other applicable hybrid plans generally require full vesting after 3 years. Other rules can require earlier full vesting, including at normal retirement age or plan termination. Plans can vest faster, and all employer contributions to SEP and SIMPLE IRA plans vest immediately.
Vesting in property law
In property law, a remainder is vested when the holder is identified and no condition precedent other than the end of the preceding estate remains, even though possession comes later. In a gift "to A for life, then to B", B has a vested remainder: B's right is fixed now, and B (or B's estate) takes possession when A dies. A gift "to A for life, then to B if B reaches 30" gives B a contingent remainder until B turns 30. A vested remainder can still be "vested subject to divestment" if a later event can cut it off. These distinctions affect whether the interest can be transferred and, in many jurisdictions, whether it complies with the rule against perpetuities.
How LexDraft helps
LexDraft can draft an employment agreement or equity clause in Microsoft Word from a plain-English description, such as a four-year schedule with a one-year cliff and double-trigger acceleration, and review a vesting provision someone sends you with tracked-change redlines. Start with the free employment agreement builder. Tax questions such as an 83(b) election need advice from a qualified tax professional.
Related terms
Frequently Asked Questions
What does vesting mean in law?
Vesting means that a right has become established or earned. For employment benefits, it commonly means satisfying the applicable service or performance requirements. In property law, a vested remainder has an identified holder and no unmet condition precedent other than the end of the preceding estate, but it may still be subject to later divestment.
What is a vesting agreement?
A vesting agreement, or the vesting section of a stock, option or founder agreement, sets out when equity is earned, what happens to unvested equity if service ends, and any acceleration triggers. Founder agreements often do this through a company right to repurchase unvested shares.
What is a one-year cliff in vesting?
A cliff is a waiting period before anything vests. With a common four-year schedule and one-year cliff, nothing vests for the first 12 months, 25% vests at 12 months, and the rest vests monthly over the next 36 months.
What happens to unvested shares when you leave a company?
Unvested options are usually forfeited, and unvested restricted shares are usually subject to repurchase by the company, often at the original price, unless the agreement provides for acceleration. Vested options typically must be exercised within a post-termination period set by the plan, often 90 days.
What does fully vested mean?
Fully vested means 100% of the right has been earned and can no longer be forfeited for leaving, for example all employer contributions to a 401(k) account once the plan's vesting period has been served.
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Get Started with LexDraftFurther Reading
- IRS: Retirement topics - Vesting — Vesting rules and example schedules for retirement plans.
- 26 U.S.C. §411 (Cornell LII) — Minimum vesting standards for qualified plans.
- 26 U.S.C. §83 (Cornell LII) — Taxation of property transferred for services, including the 83(b) election.
- Wex: Vested remainder (Cornell LII) — Vested interests in property law.