Clawback provisions are used to give owners of a company the opportunity to buyback shares from the investor (usually a private equity or venture capital firm) at a minimum price if the company achieves a certain milestone. This allows senior management the opportunity of increasing or earning back some of their percentage of ownership that they had to sell by issuing common stock to raise capital from investors. Milestones can be based on things like the number of products sold, EBITDA, gross revenues or net profits.

Here’s an example: If you reach $2,000,000 in gross revenues in the second year after funding, then the officers of the company are allowed to repurchase 10% of the shares owned by the Venture Capital firm or private investor for a nominal value, like $.10 per share. The thinking behind this is simple. If you hit the milestones your company is doing great. If your company is doing great the value of your company's common stock should have dramatically increased and the investor may be willing to let you buyback a portion of their stock holdings.