As an entrepreneur in Singapore, equity allocation is one of the most impactful decisions for your team and company. A thoughtful vesting schedule not only motivates long-term commitment but also ensures fairness and protects your business’s equity. When you begin your business registration service, it’s important to also consider the equity structure that will set your startup on the path to success.
In this blog, we explore what a vesting schedule entails, the different types available, and how to select the best one for your Singapore startup.
A vesting schedule determines how equity is earned by employees or co-founders over time or upon achieving specific milestones. For a Singapore startup, this structure is essential to:
Example: Without a vesting schedule, a co-founder leaving after six months could still own a significant portion of equity. A proper vesting schedule ensures equity is earned gradually, protecting the startup’s long-term stability.
Choosing the right vesting schedule requires understanding the main types:
The most common approach, spreading equity over a fixed period (e.g., four years). It includes a “cliff,” usually one year, where no equity is vested if the individual exits early.
Example: An early hire, Sarah, receives 2% equity under a four-year time-based schedule. After the one-year cliff, 25% vests, and the remainder vests monthly over the next three years.
Equity is linked to achieving specific goals, such as launching a product or hitting revenue targets. This structure incentivises performance and measurable outcomes.
Example: John, a co-founder, is granted 5% equity. He earns 2.5% upon the first product launch and the remaining 2.5% after the startup reaches $500,000 in revenue.
Tailoring your vesting schedule ensures it supports your business goals. Consider:
Example: A Singapore startup building a tech product may use milestone-based vesting to align engineers’ equity with key objectives, like achieving a beta launch or acquiring the first 100 customers.
Investors typically favour time-based schedules, signalling the founding team’s long-term commitment.
Example: Before securing funding, investors may require a four-year time-based schedule with a one-year cliff for all co-founders to ensure stability and continuity.
Your vesting schedule must adhere to local regulations. Consult legal experts to ensure agreements comply with employment laws and equity provisions in Singapore.
Example: A legal advisor can help draft a compliant agreement addressing employee rights, termination clauses, and unvested share buybacks.
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Clearly outline the cliff period (typically one year) and the subsequent vesting schedule (monthly or quarterly).
Specify terms for early exits and include clauses for accelerated vesting in case of acquisitions or other significant events.
Example: A Singapore startup may use a four-year schedule with a one-year cliff and an accelerated vesting clause allowing co-founders to retain part of their equity if the company is acquired early.
A strong vesting schedule fosters trust among co-founders, employees, and investors. It ensures equity remains tied to contributions and motivates your team to stay aligned with your long-term goals. For any Singapore startup, this structure is critical to building a solid foundation and scaling effectively.
Designing the right vesting schedule is fundamental for your Singapore startup. Whether you opt for time-based or milestone-based structures, the key is aligning equity with long-term commitment and contributions. By considering your team’s needs, investor expectations, and Singapore’s legal framework, you can establish a vesting schedule that safeguards your equity and supports your growth.
Setting up a company in Singapore can be challenging, but with professional support, it can be simple, Counto’s mission is to support your new business, take away the complexities of compliance, and save you time and money throughout the year. Speak to us directly on our chatbot, email [email protected], or use our contact form to get started.
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