What is a vesting cliff?
By SuLe · Updated 9 June 2026
A vesting cliff is an initial period — usually the first year — in which no shares or options vest at all. Leave before the cliff date and you keep nothing; stay past it and the first block, typically 25%, vests in one go, with the rest vesting monthly afterwards. Cliffs exist so that a founder or hire who leaves quickly cannot walk away with a permanent slice of the company.
Key facts
- The standard founder package in UK startups is four-year vesting with a one-year cliff, then monthly vesting.
- Before the cliff, vested equity is zero — a departing holder can typically be bought out of everything at nominal value.
- On a four-year, one-year-cliff schedule, 12/48ths (25%) vests on the cliff date, then 1/48th each month.
- UK founder vesting usually works as reverse vesting: you own all your shares from day one, but unvested shares can be bought back at nominal value if you leave.
- Restricted founder shares need a section 431 election (ITEPA 2003) signed within 14 days of acquisition — there is no way to make it late.
How does a vesting cliff actually work?
A cliff delays the very first vesting until a set anniversary: nothing vests before it, and a catch-up block vests on it. From then on, vesting runs on the normal monthly schedule.
Take the standard four-year schedule with a one-year cliff. For months zero to eleven, the holder's vested position is nil. On the first anniversary, twelve months' worth — a quarter of the grant — vests at once, and each month after that adds another 1/48th.
The cliff makes timing brutal at the margin. Someone who leaves in month eleven keeps nothing; someone who leaves in month thirteen keeps just over a quarter. That sharp edge is deliberate.
| Departure point | Vested (4-year schedule, 1-year cliff) |
|---|---|
| Month 6 | 0% |
| Month 11 | 0% |
| Month 12 — the cliff | 25% |
| Month 24 | 50% |
| Month 36 | 75% |
| Month 48 | 100% |
Why do startups and investors insist on a cliff?
Because the most expensive equity mistake in startups is a co-founder who leaves in month three and keeps a large stake forever. The cliff turns the first year into a probation period for equity.
Dead equity — a big shareholding owned by someone no longer contributing — is one of the first things seed investors probe in due diligence. A cap table carrying a 25% absentee is genuinely harder to fund, because the people doing the work hold too little to stay motivated through later dilution.
The cliff protects co-founders from each other, too. Nobody knows in month one who will still be delivering in year three, and agreeing the mechanism while relations are good is far cheaper than negotiating it during a falling-out.
How does a cliff work when UK founders already own their shares?
Through reverse vesting. UK founders normally hold their full shareholding from incorporation, so the cliff operates as a buyback right rather than a drip-feed of new shares.
The founders keep legal title to everything from day one, but under the shareholders' agreement or the company's articles (the constitutional documents governed by the Companies Act 2006), unvested shares can be bought back — or converted into worthless deferred shares — at nominal value if the founder leaves. No option scheme is involved.
Because those shares carry restrictions, each founder should sign a section 431 election under ITEPA 2003 within 14 days of acquiring them. The election fixes the tax position so later growth in value is taxed as capital gain rather than employment income — and there is no mechanism for making it late.
Can we negotiate the cliff — and should we ever skip it?
Everything about a cliff is negotiable: its length, the size of the catch-up block, and whether past work counts towards it. What founders should rarely do is delete it altogether.
If a co-founder has already worked unpaid for months before incorporation, the fair fix is to backdate the vesting commencement date so that time counts — not to abandon the cliff. Advisors sit on a different convention entirely: typically monthly vesting over one to two years with a cliff of around three months.
Whether a departing founder's unvested shares go at nominal value, and what happens to the vested ones, is really a leaver question — the good leaver and bad leaver definitions in your shareholders' agreement do that work, and they are entirely negotiable.
Worked example
Amara and Tom co-found a carbon-reporting SaaS with 100,000 shares of £0.001 each: 55,000 to Amara, 45,000 to Tom, both on four-year reverse vesting with a one-year cliff, written into their shareholders' agreement. Both sign section 431 elections within 14 days of issue.
Tom leaves in month ten — before the cliff — so his vested position is zero. The company buys back all 45,000 shares at nominal value: £45.
Had he stayed until month eighteen, 18/48ths would have vested. He would keep 16,875 shares (about 16.9% of the company) and the remaining 28,125 unvested shares would be bought back for roughly £28.
Where founders go wrong
Having no vesting or cliff at all "because we're all committed".
Commitment is untested in month one. Agree the standard four-year, one-year-cliff package before an investor makes it a condition anyway.Agreeing a cliff verbally but never papering the buyback.
A cliff only bites if the shareholders' agreement or articles actually let the company recover unvested shares at nominal value. No mechanism, no cliff.Missing the 14-day section 431 window.
Sign the elections the day the shares are issued; the deadline cannot be extended.Ignoring time already served.
If someone has worked months pre-incorporation, backdate their vesting start date — a cliff that ignores real contribution breeds the very resentment it exists to prevent.
Related questions
Do founders lose their shares if they leave before the cliff?
Under a standard reverse-vesting arrangement, yes in effect: every share is still unvested before the cliff, so the company or remaining founders can buy them all back at nominal value. The leaver walks away with roughly what they paid for the shares — usually a few pounds. [More: What happens to a co-founder's shares if they leave?]
Is a one-year cliff standard in the UK?
For founders, yes — four-year vesting with a one-year cliff and monthly vesting afterwards is the pattern UK investors expect to see. Advisors are different: they typically vest monthly over one to two years, often with a shorter cliff of around three months. [More: What is founder vesting and how does it work in the UK?]
What happens on the cliff date itself?
The first block of equity vests in one go. On a four-year schedule with a one-year cliff, that is a quarter of the total grant — twelve months' worth — and vesting then continues monthly, one forty-eighth at a time, until the four years are up.
Do employee share options have cliffs too?
Usually. Employee option schemes commonly copy the founder pattern — four years, one-year cliff, monthly vesting thereafter — so an employee who leaves inside the first year exercises nothing. The exact schedule is set by the option agreement, so read it rather than assuming the default. [More: What vesting schedule should employee options have?]
A cliff is only as strong as the drafting behind it: the buyback mechanics, leaver definitions and tax elections all have to line up across your shareholders' agreement and articles. A SuLe solicitor can check that yours actually work before a departure tests them. Get your founder documents reviewed — book a free consultation
Keep reading: What is founder vesting and how does it work in the UK? · What is reverse vesting? · What are good leaver and bad leaver provisions? · What happens to a co-founder's shares if they leave? · How should co-founders split equity in a UK startup? · What is a section 431 election and why does the 14-day deadline matter?
Primary sources: Companies Act 2006 · GOV.UK — Running a limited company
