When you issue growth shares, you will likely attach conditions to the agreement that the recipient must meet in order for their shares to vest, and in turn become unconditional.
But a question we’re asked every so often is: how is the conditionality of the shares removed from a legal perspective?
In real terms, what protection is in place for the recipient when they do achieve the conditions, and what can the company do when the conditions aren’t fully met?
- When a recipient is invited to accept a conditional growth share distribution on Vestd, upon acceptance they agree to the terms of the “Task Agreement” which is legally bound to the distribution.
- This “Task Agreement” is executed via the offering and acceptance by each party under the Vestd platform terms that both parties (your company and the recipient) have signed up to and accepted upon registering with the Vestd platform. You can read more about how digitally accepting an agreement on Vestd works here.
- Additionally, by accepting the conditional growth share distribution, the recipient (as a shareholder) is automatically bound by the Articles of Association of the company.
- If the conditions in the task agreement are met, the conditionality is removed. If conditions are not met, these shares can be deferred in line with the Task Agreement and the articles.
What is a Task Agreement?
A task agreement is a contractual agreement between the company and the recipient which is attached to the growth share distribution. The "Task" explains what the recipient needs to do to remove the conditionality from — and therefore keep — the shares.
There isn't a separate document for the Task Agreement, but the offer and acceptance of the task and associated conditional growth share distribution form the Task Agreement.
The conditions will be communicated during the offer and acceptance process and will be available in the Growth Share Schedule, which is accessed via the Agreement Summary. The recipient will also be able to see this on their dashboard.
What if the recipient doesn’t fulfil the conditions?
Conditional growth shares offer a greater level of protection for both parties: everyone is in agreement on what the recipient must do to earn their equity.
This is why it’s essential the conditions are clearly defined when creating the growth share scheme. It’s also important to include details of what happens when the conditions are partly met (see an example here).
For example, if the conditions are that the recipient must achieve £1,000 in new sales each month, what happens if they achieve less than that? Does a percentage of their shares vest, or do they lose them all for that vesting period?
Whether your company adopts the Vestd Articles of Association or adds our growth share clauses to your existing articles, then the following mechanism for deferring conditional growth shares exists:
If the Task (conditions related to the Task Agreement) is not completed by the recipient in accordance with the agreed terms, then the Directors may (by notice in writing) defer some or all of the V shares.
As long as the deferral is in line with Task Agreement, you don’t need the recipient’s consent to defer the shares, but you will need to record board minutes, cancel the original share certificate and issue a new share certificate for the deferred shares.
This may sound complicated, but the Vestd platform does it all for you. Read here for more information on deferring growth shares.
Of course, deferring or vesting shares must be in line with the Task Agreement. The recipient will be notified when their shares vest or defer, and they will have a copy of the Task Agreement in their Growth Share Schedule.
Our team, content and app can help you make informed decisions. However, any guidance and support should not be considered as 'legal, tax or financial advice.'