founder shares

Founder shares (or founder stock) represent the initial equity issued to the creators of a company at its inception, typically in the form of common stock purchased at a nominal price. Unlike the preferred stock later issued to investors, founder shares often include specific provisions like vesting schedules—most commonly a four-year period with a one-year "cliff"—to ensure the founders remain committed to the business over the long term. These shares provide the founders with significant voting power and "skin in the game," but they sit lower in the liquidation hierarchy than investor shares, meaning founders are generally the last to be paid out during a sale or bankruptcy. To avoid heavy future tax burdens as the company's valuation rises, founders often file an 83(b) election shortly after the shares are issued.