Clawback
Definition
A provision that allows the company to reclaim equity or proceeds in certain circumstances, such as termination for cause, violation of non-compete agreements, breach of confidentiality, or financial misconduct. Clawback provisions can apply to unvested equity, vested but unexercised options, or even proceeds from shares already sold.
Real-World Example
An executive leaves a company and immediately joins a competitor, violating a non-compete clause. The company exercises its clawback provision, cancelling 50,000 unvested options and demanding return of $200,000 in profits from shares sold in the past year.
Common Mistake
Not reading the clawback provisions in your equity agreement. Many employees focus on the number of shares and vesting schedule but skip the fine print about clawback triggers. Some agreements have surprisingly broad clawback rights that extend years past your departure.
Why It Matters
Clawback provisions can turn your equity into a conditional benefit. Understanding the triggers ensures you do not inadvertently forfeit equity you thought was permanently yours.
Related Terms
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