Meaning
Settlement document used to terminate a shareholder’s interest in a private company during a departure. The equity separation deed outlines the price, timing and conditions under which a founder or executive gives back their stock. It serves as a final release of claims between the leaver and the cap table.
Share Cancellation
Repurchasing equity often involves moving the shares back into the company treasury or cancelling them entirely to increase the value for remaining holders. The equity separation deed specifies whether the stock is bought by the corporation or by the other partners. This choice has major implications for the tax treatment of the transaction and the voting power of the board.
Leaver Provision
Rights to the shares often depend on the reason for the exit. A good leaver who retires might get the fair market value, while a bad leaver who is fired for cause might only get the original purchase price. The equity separation deed formalizes this distinction and prevents future arguments about the valuation.
This document protects the company from paying out large sums to individuals who harmed the business.
Tax Election
Parties often include a clause to handle the tax filings required by the transfer of property. The equity separation deed may mandate a specific filing to ensure the worker does not face an unexpected bill for the difference between the strike price and the current value. These details are settled before any cash changes hands.
Finality is the primary goal of the instrument.
