Meaning
A corporate transaction allows a company to buy back unvested shares from a departing founder or worker at the nominal price they initially paid. This par value repurchase is a protective mechanism that ensures equity is returned to the company’s pool when a participant leaves before earning their grant. It prevents former service providers from keeping valuable stock after their contribution has ended.
Contractual Right
The right to execute this buyback is established in the restricted stock purchase agreement signed at the start of the relationship. It gives the board a specific window of time, often sixty days, to exercise the repurchase option. If the company fails to exercise this right within the designated period, the unvested shares can vest fully or remain as a permanent liability on the cap table.
This timeline is strictly enforced because the right is a forfeiture provision that must be executed in accordance with its terms.
Capital Flow
The flow of capital in this transaction is minimal, usually involving a payment of mere cents or a few dollars.
Execution Failure
A failure to complete the paperwork or send the payment on time can void the entire buyback. The departing worker might then retain full ownership of shares they did not earn, causing severe dilution issues for the remaining founders.
