The Private Brief · Glossary

A Glossary of Deal Terms

Most of the leverage in a negotiation is lost before anyone argues, in the stretch where one side understands a term and the other is nodding along. None of these words are difficult. They are simply unfamiliar until the day they are expensive.

Definitions are general. The document in front of you governs, and two agreements can use the same word to mean materially different things — which is itself the reason to read the definitions section first.

Ownership

Vesting: Ownership that is earned over time rather than granted outright. Unvested shares return to the company if the holder leaves.; Founders often issue themselves fully vested stock at formation, which removes the one mechanism that protects the company if a co-founder leaves in month four.
Cliff: An initial period during which nothing vests, after which a block vests at once — commonly one year of a four-year schedule.; A departure the day before a cliff leaves someone with nothing. Whether that is the intended result or an accident of the calendar is worth deciding in advance, not in the moment.
Fully diluted: A share count that includes everything convertible into stock — options granted, options reserved but unissued, warrants, and convertible instruments.; A percentage is meaningless without knowing which denominator produced it. The same stake is a different number on an issued-shares basis than on a fully diluted one.
Option pool: Shares reserved for future employees. Where the pool sits relative to an investment determines who pays for it.; A pool created before the money arrives dilutes the existing holders alone. Created after, it dilutes everyone. This is negotiated more often than it is noticed.
Pro rata rights: The right, not the obligation, to invest again later in order to maintain an existing ownership percentage.
83(b) election: A filing that asks to be taxed on restricted stock at grant, when it is usually worth very little, instead of as it vests.; It has a hard thirty-day deadline from the grant date and no general cure for missing it. It is the single most common irreversible administrative mistake in early-stage formation.

Control

Ownership and control are separate questions, and it is possible to hold most of the first while having very little of the second.

Protective provisions: A list of decisions the company cannot take without a specified investor’s consent — often selling the company, issuing senior stock, or changing the board.; These bind at whatever ownership level is written, so a small holder can carry a decisive vote on the decisions that matter most.
Board seat versus observer: A director votes and owes fiduciary duties to the company. An observer attends and receives materials but does not vote.
Drag-along: A clause letting a defined majority compel everyone else to join a sale on the same terms.; It removes the ability of a minority holder to decline a sale. Which majority triggers it is the whole negotiation.
Tag-along: The mirror image: if a major holder sells, smaller holders may join on the same terms rather than be left behind with a new controlling owner.
Reserved matters: Decisions requiring a supermajority or unanimity rather than a simple majority.

Money

Pre-money and post-money: The agreed value of the company before an investment, and that figure plus the investment.; The words shift real ownership. On identical dollars, a post-money valuation gives the investor a larger share than a pre-money one at the same headline number.
Liquidation preference: The amount an investor takes off the top in a sale before common holders receive anything.; A 1x non-participating preference is ordinary. Multiples, or participation on top of the preference, can mean common holders see little in a sale that still sounds like a success.
Participating preferred: Stock that takes its preference and then also shares in what is left, rather than choosing between the two.
Valuation cap: On a convertible note or SAFE, the ceiling valuation at which the money converts to equity — the mechanism that rewards early money.
Recoupment: In entertainment agreements, the recovery of advances and defined costs out of the artist’s share before further payments flow.; Which costs are recoupable, and against which income streams, decides when money actually arrives. An advance is a loan against your own earnings, not a fee.
Most favoured nations: A promise that if better terms are given to a comparable counterparty, the same terms extend here.

Rights and IP

Assignment versus licence: An assignment transfers ownership permanently. A licence grants permission to use while ownership stays put.; This is the most consequential single distinction in a creative agreement, and the two are routinely used interchangeably in conversation and never in the document.
Work made for hire: A statutory category in which the commissioning party is the author from the outset. It applies only to employees acting within their employment, or to specified categories of commissioned work under a signed agreement.; Calling something work made for hire does not make it so. Where the category does not apply, the intended transfer has to happen through an assignment instead.
Exclusive versus non-exclusive: Whether the same rights can also be granted to somebody else during the term.
Term and territory: How long a grant lasts and where it applies. ‘In perpetuity, throughout the universe’ is a real and common formulation.
Reversion: A provision returning rights to their original owner on a trigger — a date, unrecouped status, or a failure to exploit.; Its absence is easy to miss, because nothing in the document draws attention to a clause that is not there.
Moral rights: Rights of attribution and integrity, separate from economic ownership and treated differently across jurisdictions.

Getting out

Right of first refusal: Before selling to an outsider, the holder must first offer on the same terms to whoever holds the right.
Key person clause: A provision triggered when a named individual stops being involved — an investor’s right to withdraw, or a client’s right to end an engagement.
Indemnity: A promise to cover another party’s losses arising from defined events, frequently a breach of the warranties given.; Caps, baskets and survival periods do most of the work. An uncapped indemnity can exceed everything received under the agreement.
Survival: Which obligations continue after the agreement ends — usually confidentiality, indemnities and dispute resolution.

This is general information about how these instruments and obligations usually work, not legal advice about your situation, and reading it does not make you a client. Deadlines and requirements turn on facts particular to you — your fiscal year, your state, the agreement actually in front of you. Confirm your own before you rely on any of it.