Vesting Simulator.

What vesting actually regulates

“You will receive 5% of the company” – that sounds clear. The real work starts only after that. Over how many years does vesting run? Is there a cliff? What happens if the person leaves after eleven, 26 or 38 months? And at what value are shares or claims treated in the leaver scenario?

Vesting is not a statutory default rule; it is a matter of contract design. The parties therefore have to build the mechanism themselves – typically in the articles of association, a shareholders' agreement, an investment agreement or an employee participation programme. The legal starting point is simple: the economic consolidation of the participation should not depend on the start date alone, but on the person's continuing contribution to the business.

From the perspective of investors and co-founders, vesting protects against an early departure leading to a permanent equity stake without a corresponding contribution. For founders and employees, vesting should conversely reflect fairly what has already been built. Both interests are legitimate. The balance lies in the detail.

Depending on the type of participation, the legal focus shifts: with actual GmbH shares, execution mechanics and corporate law dominate; with VSOPs, employment law and AGB control also come into play.

Cliff, term and vesting profile

In the German VC and startup market, a 48-month term with a 12-month cliff followed by monthly vesting is common. Other terms (24 to 60 months) can be seen, but are less common.

In the classic 48-month model, no material vesting tranche usually arises in the first year. At the end of month 12, a first tranche of 25% often vests, after which the remainder vests step by step. Someone leaving before the cliff will therefore often leave with nothing. Someone leaving shortly afterwards will already be in a noticeably different position.

Without a cliff, there is no waiting period until the first tranche. In the calculator, the first regular tranche then arises after the selected vesting interval has elapsed, for example after one month or after one quarter.

The vesting profile also matters. The standard is linear vesting. In practice, however, one also sees models with heavier front-loading or back-loading. Two offers with the same headline percentage can therefore be economically far apart.

Good leaver, bad leaver and grey leaver

Vesting only answers which portion of a participation has been earned. The often more important economic question is answered by the leaver clause: may the person keep the vested portion, must it be transferred, and if so at what value? That is where many agreements place the real weight.

Good leaver

A good leaver typically leaves without serious personal misconduct – for example because the company terminates without cause, because of illness, death or an agreed separation. The market standard is then that the vested portion remains with the person or is bought out at a price linked to fair market value, while unvested shares revert or are not allocated further.

Bad leaver

The bad leaver is the opposite category. It usually covers serious breaches of duty, competition breaches, disloyal conduct or termination for cause. In contractual practice, the consequences are often severe – for example forfeiture or retransfer of unvested shares and, for the vested portion, only nominal value or book value, or in virtual programmes far-reaching forfeiture.

That is not permissible without limits. In the case of actual GmbH shares, the mechanism must work cleanly under German corporate law; cancellation of shares always requires a basis in the articles of association (Section 34(1) GmbHG), and the transfer of GmbH shares must be notarised (Section 15(3) GmbHG). In addition, restrictions on compensation are not enforceable without limits. The further the nominal or book value sits below the real company value, and the less blameworthy the leaver event is, the higher the validity risk becomes.

Caution: “bad leaver” is not a label that decides the dispute automatically. The agreement must define clearly which conduct triggers the category. Vague catch-all clauses feel convenient in good times and are often the first breaking point in conflict.

Grey leaver

The grey leaver describes the middle ground – for example a voluntary departure without misconduct. This category is not prescribed by law; it is pure contract design. Economically, the parties often seek a middle path here, such as compensation below full fair market value, a frozen valuation date or an interest-bearing settlement amount. For employees' virtual equity, each of these solutions is subject, as regards already vested positions, to the BAG case law discussed below.

In practice, these cases are often the real heart of the negotiation. From the investor's and company's perspective, the aim is to avoid a voluntarily departing key person taking the entire later upside. From the founder's and employee's perspective, there is a strong case against letting already-earned performance fall back to nominal value or a symbolic amount.

Reverse vesting and forward vesting

Economically, both models are meant to produce the same result: whoever stays earns the full participation; whoever leaves early gives back the unearned portion. The difference lies in the legal construction. Under reverse vesting, shares are transferred immediately or held from the outset, but remain subject, for the unearned portion, to a retransfer obligation or a comparable clawback mechanism. Under forward vesting, shares or share-like positions arise only step by step with each vesting event.

In the case of actual GmbH shares, German VC practice will usually lead to reverse vesting. The reason lies in the interplay of tax law and corporate law: the discounted or gratuitous transfer of real shares can trigger a taxable benefit in kind at the time the benefit is received or beneficial ownership passes. If one tried to implement forward vesting with real shares, each monthly allocation would create a new taxable event, in each case at the then current fair market value. From a corporate-law perspective, each allocation would also require either a notarised transfer (Section 15(3) GmbHG) or a capital increase with commercial-register filing. That is cumbersome if each allocation is implemented separately.

Reverse vesting addresses the problem by transferring the shares once, making the beneficiary a shareholder from day one, while only the retransfer obligation lapses gradually over the vesting period. The tax-relevant acquisition is concentrated at one point in time; the corporate-law execution effort arises only once.

Forward vesting with actual GmbH shares therefore needs structuring: either the transfer of the shares is agreed in one notarial deed subject to the condition precedent that the vesting date is reached (Section 15(3) and (4) GmbHG, Section 158(1) BGB), or the grant is made through virtual programmes (VSOP, phantom shares) or option models where the grant does not amount to a share transfer in the corporate-law sense. Whether a grant is employment income depends on its causal link to the employment, not on the type of programme. In those structures, the focus shifts to grant conditions, exercise mechanics and later payout.

Short version: in practice, actual GmbH shares are usually handled via reverse vesting; virtual programmes are typically set up as forward-vesting structures.

BAG 10 AZR 67/24: limits on forfeiture and de-vesting in VSOPs

In its judgment of 19 March 2025 (10 AZR 67/24), the German Federal Labour Court (Bundesarbeitsgericht, BAG) set an important boundary for VSOP programmes. According to the decision, already vested virtual options are consideration for work already performed. If they are fully forfeited upon an employee's ordinary resignation, that does not withstand content control under Section 307(1) sentence 1 and (2) no. 1 BGB; according to the judgment, such a clause also disproportionately restricts the freedom of occupation (Article 12(1) GG) because it impermissibly impedes the exercise of the right to resign.

The court also objected to a post-termination forfeiture mechanism (so-called de-vesting) that started only three months after departure and ran twice as fast as the original vesting, while the employee had earned nothing at all until month twelve. The decision concerns forfeiture of already vested VSOP positions. The claimant did not challenge the loss of unvested options before the waiting period expired; forfeiture of unvested positions remains, in principle, much easier to defend.

Two consequences are often underestimated. First, an invalid forfeiture clause falls away entirely; there is no reduction to a still-permissible level. The company then owes settlement under the programme's unrestricted default rule – including towards former employees, to the extent their claims are not time-barred. Second, pointing to an “individual agreement” rarely helps with employees: Section 310(3) no. 2 BGB extends content control to pre-formulated terms intended for a single use, and the judgment's underlying rationale – consideration for work performed and protection of the right to resign – is not confined to standard terms law.

What can replace total forfeiture has not been decided by the courts; the debate in the literature is still in flux. Four approaches are discussed in particular: de-vesting that mirrors the vesting schedule – with a holding period after departure equal to the cliff and a forfeiture period no shorter than the vesting period; devaluing only part of the vested position rather than all of it; a repurchase offer by the company at fair market value on departure; and forfeiture only at a point when the earlier contribution can no longer influence a later exit – a link the judgment itself hints at. Which of these will hold up in court is open; they are starting points, not settled solutions.

Caution with frozen valuations: a value fixed at departure deprives the person of the chance of later value growth. For employee VSOPs, that is vulnerable under the logic of the judgment, because the earned position includes precisely that chance; a freeze that applies only after a period following departure equal to the vesting period would be easier to justify under the judgment's logic; there is no case law on that either. For managing directors without an employment relationship and for consultants a different standard applies, but the judgment's reasoning carries weight there too.

For actual shares in a reverse-vesting context, the position is not identical because German corporate-law standards set the framework there. An automatic transfer of the judgment would therefore be too crude. But all-clear would also be misplaced. If the drafting functionally leads to a broad deprivation of already-earned consideration, the pressure to justify the mechanism increases there as well.

Retransfer, cancellation and execution

In the GmbH context, execution matters alongside the commercial model when assessing whether a vesting clause is robust. In essence, there are two routes: cancellation of shares or a retransfer obligation. In the case of cancellation, the share is extinguished under corporate law. That can be practical, but always requires a basis in the articles of association (Section 34(1) GmbHG); without the affected person's consent, the grounds for cancellation must moreover have been laid down in the articles before the shares were acquired (Section 34(2) GmbHG).

The retransfer obligation works at the contractual level. The affected person must assign specific shares to co-shareholders, the company or an acquisition pool. That is more flexible, but it does not change the fact that the transfer of GmbH shares must be notarised (Section 15(3) GmbHG) and that the obligation to transfer is itself generally subject to notarial form (Section 15(4) GmbHG). Without a clean execution mechanism, the discussion quickly collapses from business logic into enforcement reality.

In practice, the most delicate point is often not whether shares must go back, but how many euros are payable. Nominal value, book value and fair market value can be worlds apart in high-growth businesses. That is exactly why the valuation methodology should not be left vague, but should be regulated in the agreement with enough precision to be enforceable when it matters.

Tax basics: actual shares, VSOP and Section 19a EStG

From a tax perspective, economically similar models can differ sharply. With actual shares, the discounted or gratuitous transfer may trigger a taxable benefit in kind at the time of receipt or the transfer of beneficial ownership – in other words, tax even though no cash has yet been received. That is the classic dry income problem: a tax burden without simultaneous liquidity.

VSOP programmes usually avoid that problem at the grant stage. The price often comes later: the payout is generally taxed as employment income, so full wage tax treatment applies and the more favourable regime for real capital gains is not available. The more liquidity-friendly entry can therefore turn into a higher tax burden at exit.

With actual shares, the later exit taxation may be more favourable. If the seller held at least 1% at any time within the last five years, Section 17 EStG applies; in that case, the capital gain is generally 60% taxable under the partial-income method. Below that threshold, the gain is investment income subject to the 25% flat tax (Abgeltungsteuer) (Section 20(2) sentence 1 no. 1 and Section 32d(1) EStG). Whether that is truly better overall depends, however, on the acquisition price, participation level, holding period and the circumstances of acquisition.

Section 19a EStG is intended to mitigate the dry-income problem for qualifying employee equity involving actual asset participations. In essence, the provision defers the tax point; it does not automatically create a final tax benefit. That distinction matters. In most cases, taxation is merely shifted to a later point in time, and VSOPs do not fall within Section 19a EStG conceptually in any event. Whether the provision applies in a specific structure depends on multiple requirements and should never be assumed lightly.

The tax section of the calculator is deliberately only an orientation layer. For actual shares, it treats a discounted or gratuitous acquisition as employment income, optionally deferred under Section 19a EStG, and taxes the later capital gain under Section 17 EStG with the partial-income method for holdings of 1% or more, and with the flat tax below that. It treats the VSOP payout as employment income. Employment income and Section 17 gains are calculated at the personal tax rate entered, gains below 1% at the 25% flat tax; a flat 5.5% solidarity surcharge is added to each of these taxes. Holding periods, church tax, social security, wage-tax withholding and the concrete Section 19a EStG requirements need to be reviewed separately in the individual case.

In short: actual shares can be more tax-efficient, but they require cleaner structuring and often greater risk tolerance at entry. VSOP is administratively lighter and more liquidity-friendly at the start, but that simplicity is often bought at the cost of a later higher employment-tax burden.

Why the time of departure matters so much

Many stakeholders model leaver cases too roughly. Statements like “After two years, roughly half is earned” are rarely entirely wrong, but they are often not enough. The economic outcome depends at a minimum on the exact vesting status, the valuation benchmark and the tax consequences of the chosen model.

A founder who leaves shortly before the cliff is in a completely different economic position from a founder who leaves only a few weeks later. The same is true for employee programmes with quarterly vesting or grey-leaver discounts. The calendar difference is small; the net effect can be substantial.

That is exactly why modelling specific scenarios is worthwhile. The decisive question is the net outcome: what remains after buy-back, valuation and tax consequences for founders, employees, investors and the company?

Always read vesting in the wider context

Vesting is never an isolated annex topic. In the cap table, the nominal percentage matters together with the effect of later financing rounds, dilution and exit structure. Anyone wanting to analyse vesting together with those factors can use the financing round simulator, the anti-dilution calculator, the liquidation preference calculator and the startup valuation calculator.