Single-trigger acceleration is a vesting provision that causes some or all of a founder’s or employee’s unvested equity to vest automatically when one event occurs, usually a sale or change of control of the company. It differs from double-trigger acceleration, which requires two events, typically a change of control followed by a termination without cause or a resignation for good reason. Because single-trigger acceleration can reduce an acquirer’s ability to retain key people, investors and buyers often resist it, and double-trigger acceleration is more common in venture-backed startups.
Founders usually hold stock that vests over several years so that they earn their equity by staying with the company. The question is what should happen to unvested shares if the company is sold before vesting is complete. Acceleration provisions answer that question, and they can significantly affect both the founder’s payout and the deal itself.
How Single-Trigger Acceleration Works
Suppose a founder holds restricted stock that vests monthly over four years, and the company is acquired after two years. Without acceleration, half the shares remain unvested, and their treatment depends on the stock plan and the acquisition agreement. They might be assumed by the buyer and continue vesting, converted into a cash right that vests over time, or in some cases cancelled.
With 100% single-trigger acceleration, all of the unvested shares vest at closing. With partial single-trigger acceleration, a specified portion vests, for example a set number of months of vesting or a percentage of unvested shares.
Single Trigger vs. Double Trigger
- Single trigger: vesting accelerates on the change of control alone, whether or not the holder keeps working for the buyer.
- Double trigger: vesting accelerates only if a change of control occurs and the holder is terminated without cause or resigns for good reason within a defined window, often a period before and after closing.
- Hybrid: some agreements combine partial single-trigger acceleration at closing with additional double-trigger acceleration.
Double-trigger acceleration protects the founder from being pushed out after an acquisition without taking away the buyer’s retention incentive. That balance is why it is more widely used.
Why Buyers and Investors Push Back
Acquirers often buy startups in large part for their teams. If key people are fully vested at closing, they have less financial reason to stay, and the buyer may respond by:
- Requiring founders to agree to new vesting on some of their shares or proceeds as a condition of the deal
- Offering new equity or retention bonuses, which may reduce the amount available to other stockholders
- Lowering the purchase price to account for retention costs
Venture investors may also resist single-trigger acceleration in financings because it can complicate a future sale. These pressures mean that a single-trigger provision negotiated early may be renegotiated at the time of the acquisition.
Potential Benefits for Founders
Single-trigger acceleration can still make sense in some situations:
- It rewards founders for value created before the sale, regardless of whether the buyer wants them afterward
- It may be appropriate for founders or advisors who are not expected to join the buyer
- Partial single-trigger acceleration can provide some certainty without eliminating retention incentives
Tax and Legal Considerations
83(b) elections
For founders holding restricted stock, a timely 83(b) election generally means acceleration of vesting is not itself a taxable event, because income was recognized when the stock was issued. Without an 83(b) election, accelerated shares can produce ordinary income on the vesting date based on their value at that time.
Stock options
Acceleration of options makes them exercisable earlier but does not by itself create income for nonqualified options until exercise. For incentive stock options, accelerated vesting can cause more options to first become exercisable in a single year, which may cause some of them to be treated as nonqualified options under the annual limit. Our article on RSUs vs. stock options explains these award types.
Golden parachute rules
Accelerated vesting triggered by a change of control can be counted as a payment contingent on the change in control under Section 280G, which may result in excise taxes and lost deductions. Private companies can often address this through a stockholder approval process. See Section 280G and golden parachutes.
Drafting points
The acceleration provision should define “change of control” clearly, specify how much vests, coordinate with the equity plan’s terms on assumption or substitution, and, for double-trigger provisions, define “cause,” “good reason” and the protection window.
The Takeaway
Single-trigger acceleration vests equity at a sale regardless of continued employment. It can be valuable to founders but often meets resistance from investors and acquirers, so double-trigger or partial acceleration is more common. Whatever structure you choose, coordinate it with 83(b) elections, option rules and Section 280G.
Frequently Asked Questions
What is the difference between single-trigger and double-trigger acceleration?
Single-trigger acceleration vests equity when a change of control occurs. Double-trigger acceleration requires both a change of control and a qualifying termination, such as a termination without cause or a resignation for good reason, within a defined period.
Is single-trigger acceleration common?
Full single-trigger acceleration is less common in venture-backed startups because it can weaken retention after an acquisition. Double-trigger acceleration, or partial single-trigger acceleration, is more often seen, but terms vary by company and negotiation.
Is accelerated vesting taxable?
It depends on the type of equity. Restricted stock covered by a timely 83(b) election generally is not taxed again when it vests. Without an election, vesting can create ordinary income. Accelerated options are generally taxed under the rules for exercise and sale.
Can an acquirer override single-trigger acceleration?
An acquirer cannot simply ignore a binding contractual right, but it can negotiate. Buyers often ask founders to waive acceleration or accept new vesting as a condition of the deal, and founders then decide whether to agree.
How Sutter Law Can Help
Sutter Law advises founders and companies on vesting, acceleration and equity terms in financings and acquisitions as part of our startup law and mergers and acquisitions practices. Contact us for a free consultation.
This article is general information, not legal advice. Reading it does not create an attorney-client relationship.
