Align your team's incentives — and keep the cap table clean

Why Vesting Matters in Spanish Startups

Equity without vesting is equity at risk. In Spanish law, shares are transferred by notarial deed or contractual commitment and the shareholder immediately acquires full ownership rights — including the right to vote, receive dividends, and block major decisions — regardless of how long they remain at the company.

Without a vesting schedule embedded in the shareholders’ agreement, a co-founder who leaves on day 366 holds the same equity position as one who stays for five years. Institutional investors invariably require a clean vesting framework as a condition of investment, and the absence of one is among the most common reasons early-stage Spanish startups are restructured before a Series A.

The Standard Four-Year / One-Year-Cliff Framework

The market standard for Spanish venture-backed companies mirrors the US convention:

• Four-year total vesting period
• One-year cliff: no shares vest until the first anniversary. If the person leaves before 12 months, they receive nothing
• Monthly vesting thereafter: after the cliff, the remaining 75% vests in equal monthly instalments over 36 months

The cliff protects the company and co-founders against early departures while providing fair treatment for those who demonstrate genuine commitment. We calibrate the schedule to the company’s specific needs: shorter periods for later-stage hires, different mechanics for advisors, and milestone-based vesting for strategic hires where time-based vesting is not the right incentive.

Ley 28/2022 — The Startup Act Tax Advantage

Art. 27 of Ley 28/2022 amended the IRPF (Impuesto sobre la Renta de las Personas Físicas — Personal Income Tax Act) to provide a significant incentive for equity compensation in qualifying startups:

• Employees and founders of ENISA-certified Innovative Start-ups (Empresas Emergentes) can receive up to €50,000 per year in qualifying shares or stock options free of income tax at delivery
• Tax is deferred until the shares are sold. If no liquidity event occurs within ten years, the taxable event is fixed at year ten
• The exemption applies per beneficiary per year — a company with 10 eligible employees can collectively shelter up to €500,000 annually
• Shares must be ordinary shares (not preferred) and the option exercise price must be no lower than the fair market value at grant date

The company must hold a current ENISA certification, must not be listed, must not be more than five years old (seven years in strategic sectors), must not distribute dividends, and must not be a subsidiary of a non-qualifying parent.

We verify eligibility, structure grants to fall within the annual cap, and prepare the documentation required to support the tax exemption in any future AEAT audit.

ESOP, Phantom Shares, and VSOP

Not every startup should issue actual shares to employees. We design and document three main structures:

ESOP (Employee Stock Option Plan): options to acquire actual shares at a fixed strike price on a future liquidity event. The employee becomes a real shareholder with voting and information rights. Benefits from the Ley 28/2022 exemption where all conditions are met.

Phantom Shares: contractual rights to a cash payment on a liquidity event equal to the value of a notional number of shares. The company retains full control of the cap table. No dilution. No ENISA exemption — phantom cash payments are treated as ordinary employment income. Preferred for late-stage companies or where foreign law governs the employment relationship.

VSOP (Virtual Stock Option Plan): virtual options settled in cash on exercise, similar to phantoms but structured to mirror option economics. Increasingly used by German-model startup ecosystems and by Spanish subsidiaries of international groups.

We advise on which structure best fits the company’s stage, jurisdiction, investor composition, and employee profile.

This service is part of our startup and venture capital legal practice.