If you wanted to knit the whole thing in the round, you'll need to add steeks for the armholes. You'd have to bind off for the armpit, then cast on 10 stitches over that gap on the next round. As you knit around, you'd knit those ten extra stitches in stockinette. When you get to the shoulder, bind off those extra stitches, sew two lines down the center with a space in between, and then cut the extra stitches between the lines of sewing.
To be honest, though, I think for a vest, I'd work the back and front separately, to avoid having to deal with the steek stitches that are left. For a sweater they're hidden when you pick up around the armhole for the sleeve, but I'm afraid they'd show through the lace, even if you knit an edging on the armholes.