Senior-hire ESOP vesting: clauses founders should settle

Summary

• Before offering senior ESOPs, settle vesting dates, milestone evidence, departure treatment and future grant decisions in the approved documents.
• For an unlisted company, Rule 12 normally leaves at least one year between an option grant and its first scheduled vesting.
• Milestones and sale-event clauses need written conditions; they do not create automatic vesting for every senior hire.
• A refresh is a separate proposed grant, and vesting alone does not promise a buyer or cash proceeds.

For a founder making a senior employee offer, the vesting calendar is only part of the promise. The candidate also needs to know what evidence releases a conditional tranche and what the approved documents say if employment or the company changes.

Settle those terms before sending a grant promise. A title, a negotiated percentage or a spreadsheet calendar cannot resolve a conflict between the offer and the approved scheme.

First vesting follows the grant-date minimum

Rule 12(6)(a) normally requires at least one year between an employee option grant and the first scheduled vesting in an unlisted company. The rule credits earlier option-holding time only for a qualifying replacement after a merger or amalgamation.

Do not shorten the first scheduled vesting date merely because the hire is senior. Later releases can be described separately once the first eligible date is clear. The four-year vesting example shows a calendar; this offer still needs its own approved dates and terms.

Write each release date and condition into the offer

Write the first vesting date, later tranche dates and quantities into the proposed grant terms against the approved scheme. Before making the offer, if a tranche depends on a performance milestone, specify:

• the measure
• evidence
• review date
• the decision process.

A milestone is a proposed condition in the scheme or grant, not proof that the leader will stay or that the target will be reached. For the separate choice of release cadence, see cliff versus graded schedules.

Define departure and sale-event treatment before promising it

State what happens to each unvested tranche if the employee leaves, and where the vested-option exercise period appears in the scheme. Distinguish an employment departure from a possible company sale; the two events need their own terms and evidence.

If a change-of-control clause is proposed, define these points in the approved terms:

• the event
• any second trigger
• the affected options
• the decision date.

A senior title alone does not create an acceleration right; the approved terms and applicable rule control the outcome.

Record who confirms whether a condition occurred before an option balance is changed. A drafted trigger is a question for the company and candidate to settle; it is not a promise that any sale will happen.

Treat refresh grants as separate decisions

Treat a later refresh as a separate proposed grant with its own approval, date, quantity and vesting terms. Review available scheme capacity and any approval needed before describing a future refresh as part of today's offer.

If the parties want a later equity review, describe when they will revisit it and who can decide. That review is not itself a new grant. Keep any future grant terms in their own approved record once decided.

Check the scheme, approvals and grant letter together

Before issuing the offer, compare the proposed calendar and conditional clauses with the shareholder-approved scheme and individual grant documents. Resolve any conflicting promise before the employee relies on a date or trigger that the approved documents do not support.

Check that the proposed grant record identifies:

• the grant date and option quantity
• the first and later vesting dates
• any objective milestone and evidence process
• the departure and sale-event wording that is actually approved
• the person or body responsible for decisions left open.

The cash and equity mix is a separate offer question. See building the full senior-hire offer for that context.

What to do next

1. Compare the proposed terms with the approved scheme, resolutions and grant document; resolve any mismatch before the offer is made.
2. Show the candidate a dated vesting calendar and name every condition that still needs a decision or evidence.

Vesting governs the option release; a future share sale would need its own transaction and terms.

FAQs

Does a senior hire's time at the company before grant count toward the first vesting date?

No, not for an ordinary new grant. Rule 12(6)(a) measures the minimum from the option grant; its earlier-holding credit is for qualifying replacement options after a merger or amalgamation.

What happens if a performance milestone is not evidenced by its review date?

Use the evidence and decision process written into the approved terms. Record the missed or disputed condition; do not mark the tranche vested merely because a review date passed.

Can a signed sale agreement trigger an acceleration clause before closing?

Only if the approved clause defines signing as its event and any other stated conditions are met. If it names closing instead, signing alone does not satisfy that wording.

Check the written trigger and record its date and evidence before updating an unvested tranche. The ordinary Rule 12 first-vesting minimum still applies.

Does a large senior grant need a separate shareholder resolution?

Potentially. Rule 12(4) requires a separate shareholder resolution for an identified employee whose annual grant meets its specified share-capital threshold. Compare the proposed grant with that provision before making the offer; scheme approval alone may not settle the individual grant.

What happens to unvested options if the senior hire resigns?

Rule 12(8)(f) says unvested options expire on resignation or termination. Vested options may be exercised within the period specified, subject to the approved scheme terms.

Does a vested option give the senior hire shareholder voting rights?

No. Rule 12(6)(c) says an option holder has no voting, dividend or other shareholder benefit from the option until shares are issued on exercise. Vesting changes the option's status; it does not issue shares.

This describes senior employee option vesting under Rule 12 for Indian unlisted companies as at October 2026. It is not advice on your offer; the approved scheme, grant date, employee status and proposed conditions change the result. Confirm the documents with your company secretary before promising the terms.

Last verified: October 2026