equity clawback

Vesting Schedule

Initial allocation agreements distribute shares across time or project milestones rather than delivering the full amount immediately. Founders establish these timelines to ensure ongoing participation from each contributor before ownership becomes absolute. Unvested units remain subject to recovery if the holder departs before completing the required tenure or objective.

This arrangement secures the capacity of the remaining team by preventing departed individuals from retaining outsized stakes without continued operational input.

Trigger Condition

Specific events activate the recovery clause and separate voluntary departures from terminations involving cause. Performance metrics or breach of restrictive covenants typically serve as the factual basis for reclaiming ownership units. The document dictates whether the company pays a nominal sum or exercises a zero-price forfeiture when pulling the shares back into treasury reserve.

Founders draft these triggers to address future contingencies without relying on subjective negotiations during a crisis.

Valuation Metric

Determining the price paid during share recovery depends on whether the calculation uses original purchase cost or current fair market value. Original cost buybacks penalize departures by stripping away unrealized gains accrued during the tenure of the contributor. Fair market value returns compensate the departing party for the price of the stock at the time of departure while still removing the voting rights and future upside.

Selecting the correct valuation baseline establishes the economic cost borne by both parties when a partnership dissolves.