Corporate | M&A

Vesting, Cliffs and Acceleration under Dutch law

By oktober 20, 2015No Comments

Many start-ups – but also venture capital investors – come to our start-up desk saying “we want to involve a new employee with 4 year vesting and a 1 year cliff”.

Vesting and cliffs have a background in US venture capital transactions and are intended as an incentive for employees and as compensation for a relatively low salary. As many successful start-ups are from the US and lots of content on their structuring is widely available on the internet, there is a trend that the majority of the start-ups (also non-US start-ups) in the Netherlands or coming to the Netherlands want to be structured as a US start-up – including working with vesting and cliffs.

The US legal concept of vesting does not exis one-on-one under Dutch law,. There are various ways to simulate the concept : by issuing new share. Acceleration will also briefly be addressed.

A Dutch private company with limited liability (B.V.)

Most serious and high-profile start-ups in the Netherlands are structured as a Dutch private company with limited liability, a ‘Besloten Vennootschap’ or ‘B.V.’. A B.V. can have various sorts of shares, such as preferred shares (mostly in profit – preferred shareholders are entitled to distributions before holders of ordinary shares) and ordinary shares.

New shares in a B.V. are issued by execution of a notarial deed to that effect in front of a Dutch of a Dutch civil-law notary. Upon execution of a deed of issue the shares are issued to the new shareholder and the new shareholder gets all rights attached to the shares (such as voting rights and profit rights).

Vesting and Cliff

To accommodate the vesting and cliff request, an underlying agreement between the shareholders and the company is required.

We give a very straightforward example. The shareholders’ agreement would set out that at day 1, the following situation exists:

Shareholder Type of Shares Nominal value Number of Shares Percentage
Founders Vehicle Ordinary Shares EUR 0.01 48,000 80%
Employee 1 Ordinary Shares EUR 0.01 3,000 5%
Employee 2 Ordinary Shares EUR 0.01 3,000 5%
Employee 3 Ordinary Shares EUR 0.01 3,000 5%
Employee 4 Ordinary Shares EUR 0.01 3,000 5%

Each employee has, at each anniversary of day 1, the option to have such number of shares issued to it by the company to allow it to achieve the percentage of shareholding in the company for the anniversary year that is set out next to its name in the table below. The price for any shares issued pursuant to the option shall be the nominal value of the shares issued (i.e. EUR 0.01 per share).

Shareholder Anniversary 1 Anniversary 2 Anniversary 3
Employee 1 6.12% 7.94% 9.75%
Employee 2 6.12% 7.94% 9.75%
Employee 3 6.12% 7.94% 9.75%
Employee 4 6.12% 7.94% 9.75%

The parties agree that the Company shall issue the shares for the relevant anniversary year in a certain month of each year and that when calculating the number of shares to be issued in relation to the percentage the normal rounding off methods shall be used.

The issue in an anniversary year typically only takes as long as an employee is still involved in the company. Being involved usually means that, (i) he/she are employed by the company on the basis of an employment agreement or management agreement and no discussions or steps have been taken to terminate such a relationship and/or (ii) the relevant employee is a shareholder in the company and no steps have been initiated to sell and/or transfer the shareholding in the company.

The cliff in this example is the first anniversary of day 1, because if an employee leaves before the anniversary of day 1 the employee does not get any shares. Next to a cliff typically also ‘good leaver/bad leaver’ provisions are used to avoid that too many persons that are not involved in the company still own shares in the company.


In addition to the vesting and cliff as set out above, parties can also include a mechanism to accelerate: acceleration basically means that if a certain event (mostly a liquidation event or exit) takes place, the employees immediately get 100% of the shares for which they have an option, even when the 4th anniversary has not yet occurred.


Although the jargon in the start-up community includes US legal concepts like vesting, there is no barrier to creating structures under Dutch law that work the same . The start-up community can work in the same manner with these concepts (vesting, cliffs, acceleration and other start-up specific concepts) and the flow of work and investments between the US Community and the Netherlands can be seamless, as it should be.

Creating vesting and cliff by issuing new shares is very straightforward. As always when it comes to structuring, there are – also under Dutch law – various ways to get to the same result.