One of the most common questions I get when helping founders set up a new startup is: “Do my unvested shares have any voting rights?” Put differently, do you only get to vote based on the number of vested shares you have at a given time? Because founders often subject most (or all) of their founder stock to vesting and start with zero vested shares, it’s an important question to get right.
Do Unvested Shares Get Voting Rights?
And the answer is simple—shares, whether vested or unvested, come with all associated voting rights. Put another way, on day one (regardless of your vesting schedule), you own every share of stock you purchased or were issued, even if the company has a repurchase right over the unvested portion. Because you own the shares on day one, you generally can vote all of those shares on day one.
Example: Suppose you purchase 4,000,000 founder shares subject to a 4-year vesting schedule with a 1-year cliff. On day one, you typically still have 4,000,000 shares outstanding in your name. Even though 100% of those shares may be unvested at that moment, you can generally vote all 4,000,000 shares (unless your documents say otherwise).
The confusion usually comes from what “vesting” means in the context of stock. For founder stock, vesting typically means the unvested portion of your shares is subject to a company repurchase option at a low price (often your original purchase price), as described in your stock purchase agreement. As you vest, fewer of your shares remain subject to that repurchase option. But you are not receiving “new shares” each month you vest; you already hold the shares, and the vesting schedule is really about whether the company can take some of them back if you leave.
Stock you’ve purchased/been issued: typically has voting rights immediately, even if it is unvested.
Vesting for stock: usually means a repurchase right exists over the unvested portion.
Vesting does not: mean you “earn” additional shares over time.
What About Unvested Options?
Options work differently. Whether an option is vested or unvested, an optionholder is not a stockholder until they actually exercise the option and receive shares. That means options, by themselves, do not carry voting rights. You could have 1,000,000 vested options and still have zero votes until you exercise and become a record holder of the underlying shares.
Common misconceptions:
“My options vested, so I can vote now.” (Not unless you exercise and receive shares.)
“My shares are unvested, so I don’t own them yet.” (You often own them, but the company can repurchase the unvested portion if you leave.)
“Vesting is the same thing for stock and options.” (The mechanics and consequences are different.)
Bottom line: unvested shares usually still vote because they are already issued and outstanding, while options (vested or unvested) typically do not vote until exercise. If you have an unusual arrangement (for example, restricted voting agreements or special classes of stock), your governing documents can change the default outcome.
Ryan RobertsStartup Lawyer
Ryan Roberts is a startup lawyer at Roberts Zimmerman PLLC with more than two decades of experience advising startups and venture capital investors. He is the author of “Acceleration” and StartupLawyer.com.
