Vesting Schedules for Founders and Employees: How They Actually Work in Canada

Key takeaways: Vesting means equity is earned over time, not handed over all at once. For founders that's usually written into a founders' lock-up agreement or shareholder agreement; for employees, it's written into the ESOP. The market-standard shape is four years with a one-year cliff, but the term that actually matters is what happens to unvested shares when someone leaves — and that has to be answered before anyone signs, not after someone quits.

Founders often treat vesting as a formality to get through quickly. It's actually the term most likely to cause a real fight later, because it's the one that decides what a co-founder walks away with if things don't work out.

What a vesting schedule actually sets

• The vesting period. Most Canadian startups use four years, sometimes three for a later-stage hire. Longer isn't automatically better — it has to match how long you actually expect someone to stay relevant to the company.
• The cliff. A one-year cliff means nothing vests until the person has been there a full year, then a chunk vests at once and the rest vests monthly or quarterly after. It exists specifically to protect the company from a co-founder or early hire who leaves after two months with a meaningful stake already locked in.
• What happens on departure. Unvested shares are typically forfeited back to the company, or to the option pool for employees. Vested shares the person keeps — the whole point of vesting is to only let someone keep what they actually earned.
• Acceleration triggers. Some agreements add single- or double-trigger acceleration — extra vesting that kicks in on an acquisition, so a founder isn't left under-vested right when the company gets bought. This has to be negotiated deliberately, not assumed.

Where vesting actually gets written down

For founders, vesting terms usually live in a founders' lock-up agreement or in the shareholder agreement between co-founders — not as a standalone contract. For employees receiving options, vesting is set out in the Employee Stock Option Plan (ESOP) itself and the individual option grant.

The one mistake that causes real damage

Founders who skip vesting on their own shares — because “we trust each other” — create exactly the problem vesting exists to prevent: a co-founder who leaves in month three keeping the same stake as the two who stayed for four years. Every investor doing diligence on a Canadian startup checks for this specifically.

What this costs to get right

Ruby drafts a founders' lock-up agreement with real vesting terms for a flat $499, or builds vesting directly into an ESOP for $799 — both reviewed by a licensed Canadian lawyer.

Frequently asked questions

Is a one-year cliff legally required in Canada?

No — it's a market convention, not a legal requirement. Nothing stops two founders from agreeing to immediate vesting or a different schedule, but investors will ask why if you deviate from the standard without a reason.

Can vesting be changed after it's signed?

Yes, with the consent of whoever it affects — but changing someone's vesting after the fact is exactly the kind of thing that should go through a lawyer, since it can have real tax consequences depending on how it's structured.

Does vesting apply to a sole founder?

Not until there's a co-founder, investor, or employee holding shares alongside them — vesting only matters once more than one person has a stake.

This article is general information about vesting schedules and is not legal advice for your specific situation. Contact us to talk through your situation.