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 generally requires authorisation in the articles of association (§ 34 GmbHG), and the transfer of GmbH shares must be notarised (§ 15 para. 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.

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 (§ 15 para. 3 GmbHG) or a capital increase with commercial-register filing. In practice, that is usually not workable.

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 therefore works in practice mainly for virtual programmes (VSOP, phantom shares) or genuine option models where the grant does not amount to a share transfer in the corporate-law sense. 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 drafted as standard terms. 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 will generally not withstand content control under § 307 para. 1 sentence 1 and para. 2 no. 1 BGB.

In the case at hand, the court also objected to a post-termination forfeiture mechanism (so-called de-vesting) that ran twice as fast as the original vesting. In the VSOP context, the mere fact that the employment relationship ends does not therefore, without more, justify the loss of what has already been economically earned. The decision concerns forfeiture of already vested VSOP positions. The forfeiture of positions that had not yet vested, by contrast, remains in principle much easier to defend; the claimant did not challenge the loss of unvested options before the waiting period expired.

This is highly significant for German contract practice. Many programmes use standard templates and classify voluntary resignation across the board as a bad-leaver case. At least to the extent that this is meant to strip vested VSOP positions entirely, that logic is hardly sustainable after the BAG judgment.

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 generally requires authorisation in the articles of association (§ 34 GmbHG), unless exceptionally the affected person consents.

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 (§ 15 para. 3 GmbHG) and that the obligation to transfer is itself generally subject to notarial form (§ 15 para. 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 § 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. In particular, where a substantial participation exists, § 17 EStG may apply; in that case, the capital gain is generally 60% taxable under the partial-income method. Whether that is truly better overall depends, however, on the acquisition price, participation level, holding period and the circumstances of acquisition.

§ 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 § 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 shows a simplified Section 17 / partial-income-method example for substantial participations. Smaller holdings, employee income treatment, holding periods, social security, wage-tax withholding and the concrete Section 19a requirements need to be reviewed separately.

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 cap table simulator, the anti-dilution calculator, the liquidation preference calculator and the startup valuation calculator.