When an acquirer signs a term sheet to buy your startup, every unvested option and every unvested founder share suddenly has a question mark over it. Does it vest because of the deal? Does it roll into the buyer’s equity? Does it simply lapse? The answer is whatever your documents say — and the clause that decides it is the acceleration provision, which comes in two flavours that founders routinely confuse: single trigger and double trigger.
The Two Triggers
Single-trigger acceleration vests unvested equity on one event alone — a change of control. The company is sold, and some or all of the holder’s unvested options or shares vest at completion, regardless of whether they keep their job.
Double-trigger acceleration requires two events: a change of control and a qualifying termination — usually dismissal without cause, or resignation for “good reason” (a material demotion, pay cut or forced relocation) — within a defined window around the deal, commonly from three months before completion to twelve months after.
The market logic is straightforward. A buyer is paying, in part, for the team, and unvested equity is the retention glue holding that team through the integration period. Single-trigger acceleration dissolves the glue at completion: everyone is fully vested, nobody has an equity reason to stay, and the buyer responds by discounting the price or demanding fresh retention packages funded out of the consideration. Double-trigger acceleration preserves the retention incentive while protecting the holder against the real mischief — being acquired and then terminated so the buyer can harvest their unvested equity. That is why double-trigger is the default position in Australian venture-backed companies, as it is in the US; full single-trigger acceleration for a broad employee pool is rare and will be attacked in due diligence by both investors and acquirers. Where acceleration is negotiated at all, the usual compromises are partial acceleration (25–50% of the unvested balance), acceleration only for founders or named executives, or double-trigger protection for everyone with no single-trigger component.
What Your Plan Rules Actually Say
Most Australian ESOP rules don’t hard-code acceleration at all. The standard drafting gives the board a discretion on an “exit event” to accelerate vesting in whole or in part, arrange for options to be replaced with equivalent awards in the acquirer, allow a window to exercise, cash-cancel the options, or let unexercised options lapse. A discretion is not a right: an employee whose offer letter says “your options may accelerate on an exit” has materially weaker protection than one whose contract says they will. Founders should know which of the two their own documents contain before a term sheet arrives — and so should the senior hires relying on them.
Founder equity raises the mirror-image question. Founder shares are usually subject to reverse vesting through buy-back or forfeiture provisions in the shareholders’ agreement, and a change of control is the classic point at which reverse vesting should switch off — a founder who has just been dragged into a sale under the drag-along clause should not remain exposed to losing shares afterwards. If your shareholders’ agreement is silent on what an exit does to founder vesting, that is a gap worth closing well before a deal.
The Tax Consequences of Pulling the Trigger
Acceleration is not tax-neutral, and the outcome depends on which Division 83A regime the equity sits in under the Income Tax Assessment Act 1997 (Cth).
If the options were issued under the startup concession in section 83A-33, acceleration itself creates no taxing point — there is no deferred taxing point to crystallise — and any gain on sale is taxed under the CGT rules. One real caveat: the concession requires ESS interests to be held for three years (or until employment ceases), and a sale inside that window can retrospectively deny it. The ATO will reduce the holding period where the exit disposes of all the shares in the company under a single arrangement — a 100% sale — but a partial sale, secondary sale or early acqui-hire within three years of grant may not qualify, turning an expected capital gain into assessable income.
If the equity sits in a tax-deferred scheme under Subdivision 83A-C — common for later-stage companies that have outgrown the startup concession — acceleration on an exit will generally crystallise the deferred taxing point, because the forfeiture conditions and disposal restrictions that were deferring tax fall away. The discount is then assessed as ordinary income at marginal rates. Two mechanics soften the edges. The 30-day rule moves the taxing point to the date of disposal where the holder sells within 30 days of the deferred taxing point, so employees cashed out at completion are taxed on what they actually received. And where the buyer issues replacement awards in a takeover or restructure, section 83A-130 can treat the new awards as a continuation of the old ones, rolling the tax deferral over rather than triggering it — one reason sophisticated acquirers structure rollovers carefully.
Note what is no longer a taxing point: cessation of employment was removed as an ESS deferred taxing point from 1 July 2022, so the termination limb of a double trigger does not, by itself, create the tax event — the vesting and exercise mechanics do.
The Trap Nobody Prices: Section 200B
Here is the distinctly Australian wrinkle. Under Part 2D.2 of the Corporations Act 2001 (Cth), a benefit given to a person “in connection with” their retirement from a managerial or executive office — and retirement includes dismissal and resignation — requires shareholder approval under section 200B unless an exemption applies. The regulations expressly deem the automatic or accelerated vesting of share-based payments on, or as a result of, a person’s retirement to be such a benefit (reg 2D.2.03 of the Corporations Regulations 2001) — squarely capturing the termination limb of a double trigger. For an unlisted startup, the provisions catch directors and management roles held by directors — which is to say, founders — and they keep applying to any employment for three years after the person leaves such an office.
The main exemption caps unapproved termination benefits at roughly one year’s average base salary. Accelerated vesting of a founder-CEO’s unvested equity in a venture-backed company will sail past that cap without slowing down. A double-trigger clause that fires on the founder’s post-completion termination is precisely the fact pattern the provisions aim at — and a benefit given in breach is held on trust for the company and must be repaid. The fix is procedural, not fatal: obtain informed shareholder approval that squarely identifies the acceleration as a termination benefit, either when the plan terms are put in place or as part of the deal approvals.
Getting the Drafting Right
Negotiate acceleration when the equity is granted, not when the LOI lands: define “change of control” so it captures share sales, business sales and mergers but not an internal restructure or a new financing round; use double-trigger protection with a realistic window; specify the accelerated portion precisely; and make board discretion the fallback, not the entire answer. Acceleration terms also interact with escrows, holdbacks and retention pools in the sale agreement itself, so model the after-tax outcome before you sign.
Reviewing how equity plans, shareholders’ agreements and employment contracts behave on an exit is core work for us as startup lawyers in Sydney, and our venture capital team drafts and negotiates acceleration provisions on both sides of the table — for founders granting them and investors scrutinising them.
This article is general information only, not legal advice — the right acceleration structure depends on your cap table, your plan rules and your tax position. Viridian Lawyers advises Australian startups, founders and investors on equity plans, exits and everything in between. If you’re granting equity or heading toward a change of control, get in touch.
