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Forfeiture

Forfeiture refers to the loss of rights, property, or money as a penalty for breach of a legal obligation or failure to meet specific conditions. In finance, forfeiture often applies to assets such as unvested stock options, bonuses, or pension benefits when employees leave a company before meeting certain requirements. It can also occur in legal contexts, where assets are seized due to illegal activity, such as tax evasion or money laundering.

Example

An employee leaves a company before their stock options are fully vested, resulting in forfeiture of the unvested portion, which reverts back to the company.

Key points

• Involves losing rights, property, or assets due to non-compliance with legal or contractual terms.

• Common in employment agreements with stock options or benefits.

• Can also occur in legal cases involving criminal activity or regulatory breaches.

Quick Answers to Curious Questions

Forfeiture happens when conditions for vesting stock options are not met, or when assets are seized due to legal infractions, such as financial crimes.

Employees may lose unvested options or benefits, impacting their compensation and financial planning, especially if they leave before meeting vesting schedules.

Forfeiture laws aim to deter illegal activities, but the process can be complex and contentious, involving court proceedings and potential disputes over asset ownership.