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Here's some context in case it's relevant. I worked at a startup which issued shares (not options) to employees. A good chunk of my shares have vested over the 4-year vesting period. I have voluntarily quit without being fully vested. The company would like to purchase all my shares back. I understand that I don't get to keep my unvested shares, but I'm under the impression that the vested shares are mine to keep. I have already bought them and paid the taxes. I filled out IRS form 83b.

This is the relevant part of my shareholder agreement

if such person’s employment is terminated without Cause, such person shall only be required to sell his or her Unvested Shares hereunder and shall not be required to transfer his or her Vested Shares.

I was not terminated. I voluntarily quit and left in good standing. The shareholder's agreement doesn't seem to address what happens to employee shares if they quit.

What's the default here? That is, if there was no mention of share buyback, is the company allowed to purchase my shares without my agreement?

What recourse do I have if they insist on buying it back?

What happens if I simply refuse to sign any offer deal?

Thank you in advance for you time

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2 Answers 2

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Possibly

Your employment contract is only one part of your deal

You are also bound by the company’s constitution and any shareholder agreement that may exist. Companies often have wide ranging powers to repurchase their own shares at fair market value or following a pre-specified formula. It’s not uncommon for private companies to get an option to purchase shares automatically from ex-employees.

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Does company have the right to purchase my vested shares after I quit?

No. Although either party may terminate the employment relation, the notion of termination for cause typically denotes the employer's conclusion that the employee incurred some wrongdoing or misconduct. Some results from this search reproduce excerpts of contracts defining the notion of "[termination for] cause", and you will notice that the definitions are consistent.

Unless your contract gives a contrary definition of "cause", the employer would have the burden to persuade why its notion of "cause" should be allowed to depart from the common meaning thereof.

In a more stringent scenario, "for cause" might encompass the employer's premise that continued employment would be detrimental to the employer. But your resignation, more so under the circumstances you mention, is equivalent to termination without cause.

Therefore, the contract entitles you to retain the vested shares (that is, to decline any buyback proposal).

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  • What kind of attorney specializes in this type of law? I may need to find one to read over my shareholder contract or other related material
    – kane
    Nov 15, 2019 at 21:22
  • I'm not sure it amounts to --or that it merits being called-- "specialty". I find contract law a very standard, widely applicable, and straight forward area of law (both substantive and procedural). This means that, although contract disputes might involve interesting and complex scenarios, contract law itself is premised on very simple, logical tenets. Depending on the terminology and details, the lawyer might need some background in financial instruments to fully understand the scope and implications of your contract. Nov 15, 2019 at 22:03

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