Structuring Founder Repurchase Option Clauses and Section 83 Tax Elections
Structure founder repurchase options at nominal par value and enforce strict 30-day Section 83b election filings to eliminate phantom income tax exposures.
Unvested Share Clawback
Meaning
Investment documents specify the right of an entity to reclaim equity that has been issued but not yet fully earned by the recipient. The unvested share clawback acts as a recovery tool for a company to clean its cap table after a service provider or founder leaves the project early. It governs shares that are held by an individual but remain subject to a vesting schedule or performance milestones.
This right stops applying once the shares vest or if the company waives the recovery in a separation agreement.
Forfeiture Mechanism
The process is often automatic upon the termination of an employment or consulting contract. An unvested share clawback usually requires the individual to sign over the shares back to the corporate treasury. If the individual refuses, the company often holds a power of attorney to execute the transfer unilaterally.
Termination Event
Specific reasons for departure often dictate whether the recovery happens at cost or for no value at all. In most cases, an unvested share clawback is triggered by a resignation or a firing for cause. This ensures that equity is reserved for those who continue to build the value of the firm.
Capital Recovery
Reclaimed shares return to the option pool or are cancelled to reduce the total number of shares outstanding. By exercising an unvested share clawback, the board protects the ownership percentage of the remaining investors. This prevents the dilution that would occur if departing members kept their full initial grants.