Italy: Are founders' shares subject to vesting?

In Italy, founders’ shares are not subject to an “actual” vesting process as in foreign jurisdictions. However, the underlying purpose of vesting is still achieved through specific “leaver-provisions”. These provisions grant investors and/or the company a call option right to purchase (in whole or in part) their founders’ shares upon the occurrence of certain specific events. The primary goal of these provisions is to ensure that founders remain committed to the company’s activity for a certain period (typically 3-5 years) and mitigate the risks associated with a founder’s departure. 

Depending on the circumstances under which the founder terminates their relationship with the company, the same may be qualified as either a “bad leaver” or a “good leaver”:

1. “Bad Leaver”: this category generally includes scenarios where a founder is dismissed for gross misconduct, fraud, dishonesty, conviction of a criminal offence, or material breach of restrictive covenants (by way of example, non-compete and stability provisions). In such cases, the investors and/or the company may exercise the call option right at a “punitive” price, typically equal to the nominal value of the founder’s shares.
2. “Good Leaver”: this category generally includes all other termination scenarios not classified as bad leaver events. It often includes situations where the founder leaves due to health reasons that prevent them from continuing their activities within the company. In these cases, investors and/or the company may exercise the call option right at a price generally equal to the fair market value (or the fair market value with the application of a discount) of the founder’s shares. 

In the event of a “good leaver”, the percentage of founders’ shares subject to the call option right may decrease over time through a decalage procedure. Initially, the percentage of shares subject to the call option right is high (e.g., 100%-70% of the founders’ shares) and gradually reduces over the time based on a yearly, monthly or even daily decalage (monthly and daily decalages (which are less standard) are usually subject to an initial cliff). As a consequence, the later the good leaver event occurs, the lower the percentage subject to the call option will be. 

These leaver provisions are typically provided under the shareholders’ agreement signed in the context of an investment round. As mentioned above, these provisions are usually for a limited period of time, generally 3-4 years. 

In summary, while founders’ shares in Italy are not subject to traditional vesting, similar objectives are achieved through leaver provisions and call options, ensuring founders’ commitment and managing the risks associated with their potential departure.