Meaning
Contractual process for reclaiming shares from a departing stakeholder according to pre-defined vesting or buyback terms. In many early stage agreements, equity recovery allows the remaining entity to pull back unvested or disputed portions of an ownership stake. This mechanism prevents the capitalization table from carrying dead weight when a founder leaves before reaching specific milestones.
It applies only to the shares covered by the specific clawback or vesting clause in the shareholder agreement.
Repurchase Right
The company usually holds the first option to buy back the shares at a set price. This equity recovery step ensures that the stock does not end up with an outside party who has no interest in the business.
Vesting Schedule
Time acts as the primary filter for how much stock a person actually owns. Under an equity recovery provision, the portion of the grant that has not yet matured returns to the company pool.
Dispute Resolution
When a founder is removed for cause, the terms of the recovery might change from a fair market value to a nominal sum. This distinction is found in the signed records of the board meetings and the initial offer letter. Such a move is often irreversible once the stock certificate is cancelled in the corporate registry.
