Define Vested: What Does It Mean To Be Vested

Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 4,036 reviews

Jump to Section

Need help with a legal contract?

Post Project Now

Post Your Project (It's Free)

Get Bids to Compare

 Hire Your Lawyer

What Is Meant By Vested?

Being vested means you have earned the right to a present or future asset or benefit. Being vested essentially means you have completed certain achievements that gives you the right to an asset or benefit.

Example : If you joined a startup and received incentive stock options and your options are vested , this means you have achieved what was required of you to earn those stock option shares. This typically means you have a stayed for a certain amount of time at the startup or have completed certain milestones.

Here is an article that dives deeper into vesting.

Vesting Defined

Vesting’s legal meaning is to earn the right to a present or future asset. Vesting is commonly found in employee stock options, restricted stock units , qualified retirement accounts, and pension plans. Vesting is also commonly used in real estate transactions and inheritance.

Vesting Schedule

A vesting schedule is a term that is included as part of the employee compensation package. A vesting schedule can apply to stock options, restricted stock, and qualified retirement plans. The vesting schedule outlines the requirements the employee will need to achieve in order to become vested.

Here is an article on vesting stock.

What Are Vested Options?

Vested options are employee stock options that have been earned and now belong to the employee. Before they were vested, they were not owned by the employee. In other words, the employee has achieved what was required in order to earn the options, which is typically tied to time.

Example : If John joined a company that issued him 500 restricted stock units with a vesting schedule of one year. John’s shares will be vested once he stays for one year.

For options, this means the employee now has the right to exercise the options they have earned that have vested. To exercise stock options means you buy the shares at a pre-determined price with the idea they will be worth more than the purchase price.

Here is an article on incentive stock options.

Meet some lawyers on our platform

Matthew S.

2 projects on CC
View Profile

Ryenne S.

133 projects on CC
View Profile

Michael M.

180 projects on CC
View Profile

Michael K.

70 projects on CC
View Profile

What Is A Vested 401k?

Being vested in relation to your 401k funds refers to the amount of money you can take with you when you leave your company. You will always be able to take the money you have personally contributed to your 401k when you leave, but this may be a bit different as it relates to money contributed by your employer through some sort of employer matching scheme.

Many employers will set vesting schedules regarding their contribution to your 401k, which are typically time-based vesting schedules. Make sure you read your employment offer to better understand this.

Example : An employer may offer a 401k program to employees where the employer matches your contribution dollar for dollar. In other words, if you contribute $500 per month to your 401k, your employer will match the $500 contribution as well. However, the employer may set up a vesting schedule on their matched contribution, which could be three to seven years.

Here is an article about 401k vesting.

What Does It Mean When You Are Fully Vested?

Being ‘fully vested’ or ‘100% vested’ means you have accomplished all achievements required to be entitled to the asset, payment, or benefit that was previously vesting. Simply put, you have fully earned your right to the asset, payment, or benefit.

ContractsCounsel Vesting Defined Team Image

Image via Pexels by Canva Studios

Examples of Being Vested

Understanding what being vested means can be complicated, so we want to run you through a few examples of what it means. There are many more examples beyond what is below, but this example should give you a good idea of what it is meant when someone says vested.

Vested Options

Stock options give an employee the ability to earn the right to buy shares of their employer at a pre-determined price in the future. The pre-determined price is a reflection of the fair market value of the stock at the time of the grant, which in theory should appreciate by the time the employee purchases the shares netting the employee a profit.

Here is an example:

  • You join an early-stage startup and are issued 40,000 shares of stock options.
  • Your vesting schedule includes:
    • Four-year timeframe
    • One-year cliff
    • 25% of shares vest each year
    • After one year, the stock vests monthly, equally
  • After one year of employment, 10,000 shares are vested (25% of total grant).
  • After two years of employment, 20,000 shares have vested (10,000 vested in year two).
  • After three years of employment, 30,000 shares have vested.
  • After four years of employment, 40,000 shares have vested and you are 100% vested.
  • If the employee chose to leave after two years of service, the employee will have earned 20,000 shares and would leave without the other 20,000 shares vesting.

One thing to keep in mind with stock options are the employee does not own the shares once vested. They simply have earned the right to exercise the shares in the future. Meaning, if the share price is higher than the exercise price at some sort of liquidity event , the employee can buy the shares at the lower price to make a profit.

Here is an article that digs deeper into how vested options work.


Get Free Bids to Compare

Leverage our network of lawyers, request free bids, and find the right lawyer for the job.

Get Bids Now

Vested Equity

Vested equity or vested stock means an employee has earned the right to shares of the company by accomplishing some sort of achievement laid out by the vesting schedule. One form of vested equity or vested stock is restricted stock units or RSUs. RSUs, unlike stock options, are owned outright by the employee after they have vested.

Here is an example of how this works:

  • You join a startup as an executive and are offered 800 RSUs are part of your compensation package.
  • The vesting schedule for your RSUs is:
    • Four-year vesting schedule.
    • One-year cliff.
    • Shares vest 25% each year.
    • After one year, shares vest quarterly.
  • If you stay for one year, 200 RSUs would have vested.
  • If you stay for two years, 400 RSUs would have vested.
  • If you leave after 26 months, only 400 RSUs would have vested.
    • This is because your RSUs are vested quarterly and you did not stay the entire first quarter of year three.

The example above is different since the employee would have equity ownership immediately after the RSUs vest. This is different than stock options since there is no exercising of RSUs.

Here is an article that digs deeper into employee equity.

Get Help Understanding Vesting

Being vested is a great thing but also difficult to understand all options. If you would like to consult a lawyer to get help, you can post a project in the ContractsCounsel’s marketplace. The lawyers would be happy to review any sort of employee stock purchase plan or employment agreement and advise on your options.

How ContractsCounsel Works
Hiring a lawyer on ContractsCounsel is easy, transparent and affordable.
1. Post a Free Project
Complete our 4-step process to provide info on what you need done.
2. Get Bids to Review
Receive flat-fee bids from lawyers in our marketplace to compare.
3. Start Your Project
Securely pay to start working with the lawyer you select.

Meet some of our Lawyers

Orin K. on ContractsCounsel
View Orin
5.0 (3)
Member Since:
October 24, 2021

Orin K.

Partner
Free Consultation
Get Free Proposal
New York
19 Yrs Experience
Licensed in NY
New York Law School

I'm an employment lawyer. I counsel and represent employees in all professions, from hourly workers to doctors and executives, and all in between. I also counsel and represent employers in many aspects of employment law.

Abhijit "Beej" D. on ContractsCounsel
View Abhijit "Beej"
5.0 (1)
Member Since:
October 25, 2021
Scott S. on ContractsCounsel
View Scott
4.9 (14)
Member Since:
October 26, 2021

Scott S.

Attorney
Free Consultation
Get Free Proposal
New York, NY
16 Yrs Experience
Licensed in NY
Benjamin Cardozo School of Law

Scott graduated from Cardozo Law School and also has an English degree from Penn. His practice focuses on business law and contracts, with an emphasis on commercial transactions and negotiations, document drafting and review, employment, business formation, e-commerce, technology, healthcare, privacy, data security and compliance. While he's worked with large, established companies, he particularly enjoys collaborating with startups. Prior to starting his own practice in 2011, Scott worked in-house for over 5 years with businesses large and small. He also handles real estate leases, website and app Terms of Service and privacy policies, and pre- and post-nup agreements.

Reuben O. on ContractsCounsel
View Reuben
Member Since:
October 21, 2021

Reuben O.

Senior Managing Attorney
Free Consultation
Get Free Proposal
Seattle/Boise
14 Yrs Experience
Licensed in ID, WA
The University of Iowa

As an entrepreneur at heart, I enjoy working with business owners and executives on a variety of corporate matters, including mergers and acquisitions, corporate financing, corporate governance, public and private securities offerings, privacy regulation and early-stage corporate matters including formation. As a lawyer and business professional, I understand the value of providing personal service and focused legal answers to clients navigating a rapidly changing regulatory environment. Whether in Aerospace, Consumer Goods, or Technology, I find great success in work collaboratively with clients to strategical structure their business or implementing strategic growth-oriented financing opportunities.

Thaddeus W. on ContractsCounsel
View Thaddeus
Member Since:
October 22, 2021

Thaddeus W.

Principal
Free Consultation
Get Free Proposal
Los Angeles, Ventura County, New York City
26 Yrs Experience
Licensed in CA, NY
University of Notre Dame Law School

Experienced legal counsel to entrepreneurs, small businesses, and investors. Advising clients starting, buying, selling, operating, financing, and investing in businesses // U.S. Army Veteran // Ironman Triathlete, Marathoner, Open Water Swimmer, USAT Triathlon Coach // Lover of Dogs, Cribbage, Craft Beer, Bourbon, and Cigars

Nichole C. on ContractsCounsel
View Nichole
Member Since:
October 22, 2021

Nichole C.

Attorney
Free Consultation
Get Free Proposal
Kentucky
17 Yrs Experience
Licensed in KY
University of Louisville, Brandeis School of Law

Licensed attorney in KY and Federally JD, 2006 University of Louisville MBA, 2006 University of Louisville BS, 2001 Berea College Licensed Title Agent Arbitrator and Certified Mediator Business Consultant Adjunct Professor, Law and Business

Michelle F. on ContractsCounsel
View Michelle
Member Since:
January 24, 2022

Michelle F.

Attorney
Free Consultation
Get Free Proposal
New York
5 Yrs Experience
Licensed in NY
Touro College Jacob D. Fuchsberg Law Center

I provide comprehensive legal and business consulting services to entrepreneurs, startups and small businesses. My practice focuses on start-up foundations, business growth through contractual relationships and ventures, and business purchase and sales. Attorney with a demonstrated history of working in the corporate law industry and commercial litigation. Member of the Bar for the State of New York and United States Federal Courts for the Southern and Eastern Districts of New York, Southern and eastern District Bankruptcy Courts and the Second Circuit Court of Appeals. Skilled in business law, federal court commercial litigation, corporate governance and debt restructuring.

Steve C. on ContractsCounsel
View Steve
Member Since:
October 26, 2021

Steve C.

Principal | Attorney
Free Consultation
Get Free Proposal
Irvine
24 Yrs Experience
Licensed in CA
Loyola Law School

I am a corporate and business attorney in Orange County, CA. I advise start-ups, early-growth companies, investors, and entrepreneurs in various sectors and industries including technology, entertainment, digital media, healthcare, and biomedical.

Oscar B. on ContractsCounsel
View Oscar
Member Since:
October 28, 2021

Oscar B.

Attorney
Free Consultation
Get Free Proposal
Saint Petersburg, FL
21 Yrs Experience
Licensed in FL
Stetson University, College of Law

Oscar is a St. Petersburg native. He is a graduate of the University of Florida and Stetson University, College of Law. A former US Army Judge Advocate, Oscar has more than 20 years of experience in Estate Planning, Real Estate, Small Business, Probate, and Asset Protection law. A native of St. Petersburg, Florida, and a second-generation Gator, he received a B.A. from the University of Florida and a J.D. from Stetson University’s College of Law. Oscar began working in real estate sales in 1994 prior to attending law school. He continued in real estate, small business law, and Asset Protection as an associate attorney with the firm on Bush, Ross, Gardner, Warren, & Rudy in 2002 before leaving to open his own practice. Oscar also held the position of Sales & Marketing Director for Ballast Point Homes separately from his law practice. He is also a licensed real estate broker and owner of a boutique real estate brokerage. As a captain in the US Army JAG Corps, he served as a Judge Advocate in the 3rd Infantry Division and then as Chief of Client Services, Schweinfurt, Germany, and Chief of Criminal Justice for the 200th MP Command, Ft. Meade, Maryland. He is a certified VA attorney representative and an active member of VARep, an organization of real estate and legal professionals dedicated to representing and educating veterans. Oscar focuses his practice on real small business and asset protection law.

Rachael D. on ContractsCounsel
View Rachael
Member Since:
October 28, 2021

Rachael D.

Attorney
Free Consultation
Get Free Proposal
New York
11 Yrs Experience
Licensed in NY
Touro Law

We help simplify every transaction and provide a superior level of customer service to create long lasting and trusted relationships with our clients. Our goal is to guide our clients with practical and zealous legal representation and eliminate the difficult nature of any legal transaction.

Find the best lawyer for your project

Browse Lawyers Now

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call