MasiboLaw

Imagine this situation, you and your friend decide to start a business and agree in writing that you will own it 50:50. For the first few weeks you both work hard at it but afterwards, your friend starts slacking and completely gives up on the idea. You continue working on it day and night and 2 years later, your product proves that it is viable and you sell it for 100 million shillings. When you are just about to deposit the cheque in your bank account, your friend shows up and demands 50 million shillings, what will you do?

What I have described above is what happens when you don’t have a vesting schedule for your business, especially where business partners are involved. A vesting schedule is a document that creates a structure that requires business partners to achieve certain goals or hit specific milestones before they can have a certain percentage of the business. For example, it may read that your business partner is entitled to 40% of the business if they dedicate three years to your business or 30% if they bring a certain amount of profit to your business.

Why is a Vesting Schedule Important?

1. It ensures your co-founders/business partners are dedicated to your business

A good vesting schedule rewards the dedication of the people in your business and ensures that commitment is rewarded and laxity is punished. In a good vesting schedule, if the business partner does not fulfil the requirements of the schedule they do not receive shares in the business which instead go back to the company and the committed founder.

2. It makes raising funding easier

A good number of venture investors will want to see your vesting schedule. This is because they will want to make sure that you and your co-founder are committed to your venture for the long haul and will not walk away before the company has fully developed.

3. It gives incentives to founders not to give up

One of the benefits of having a vesting schedule is that it also gives incentives to founders and business partners not to give up. People are more likely to give much more to the business when they know that in 3 years, they will have a 30% stake in the business.

Do you have a vesting schedule for your business?

The writer is a lawyer who specializes in offering legal services to people in technology. You can reach him through info@masibolaw.co.ke