Carve-Out (Management Carve-Out)
A plan that reserves a portion of exit proceeds specifically for management and key employees — sometimes used when a low sale price would otherwise leave common stockholders with very little.
Quick Answer
When does a company typically adopt a management carve-out plan?
Most commonly when a likely acquisition value is low enough that the standard liquidation preference stack would leave common stockholders — including key employees — with little to no proceeds, undermining retention through the deal.
- This typically activates ahead of a lower-value exit scenario
- It's designed specifically to preserve employee retention incentive
- The board must formally adopt the specific carve-out terms
The Lovie Advantage
Lovie can model a carve-out plan against your real preference stack, showing the actual payout shift before the board adopts it.
See how this connects to 409A Valuation. For the formal definition, see the SBA's guide to managing your business finances.
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