Meaning
A contractual repurchase restriction placed on already issued founder equity protects a company against premature departure by early stock holders. Operating under a reverse vesting schedule gives the corporation the right to buy back unvested shares at nominal cost if a founder leaves before agreed time milestones elapse. Unlike standard option vesting, the founder owns all shares legally from the issuance date, exercising full voting rights from inception.
The mechanism governs founder equity retention across a typical multi-year service commitment. Its boundary ceases once all shares pass the final vesting date and become fully unencumbered.
Repurchase Option
The mechanics of share clawbacks depend on predefined repurchase price schedules, usually set at original par value. As time passes, the company forfeits its right to repurchase a growing fraction of the founder stock. A standard reverse vesting schedule liberates equity incrementally each month following an initial cliff period.
This structure ensures that equity allocation remains tied directly to ongoing operational service.
Cliff Duration
An initial period of service must elapse before any equity becomes immune to company repurchase. If a founder exits prior to reaching this milestone, the company exercises its repurchase right over the entire share allocation. Passing the cliff secures the first tranche of permanent equity ownership.
Founder Departure
Voluntary resignation or termination for cause activates the repurchase mechanism for all remaining unvested equity. The remaining founders preserve capitalization table equity to hire replacement leadership without diluting existing investors.
