One popular and important mechanism in the relationship between
a startup and its founders is the reverse vesting. The mechanism
enables the company to repurchase from a founder's shares, when
he and the company separate earlier than expected. In the last
several years, the concern that the tax to be imposed on such
shares shall be doubled increased. Recently, the Israeli Tax
Authority (the "ITA") eliminated such concern.
What is the reverse Vesting Mechanism?
The founders of startup are usually considered as one of its
important assets. Therefore and due to the legal and
practical difficulty to ensure that the founder keep serving the
company lead to the need for the reverse vesting mechanism. Such
mechanism subjects the founder's shares in the startup to the
company's right to repurchase the shares, in case of early
separation therebetween. The mechanism is designed to encourage the
founder to stay active in the startup and create fair allocations
of the shares
