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What is a Clawback ?

Clawbacks are usually understood to be a business execution that allows for the gathering of income that was previously issued to investors and new parties, as a way of covering costs associated with the primary mercantilism or investment proceed.

There are various examples of how a clawback functions. One is commonly known as the dividend clawback. This has to do with the process that the project is structured and what responsibilities both the investors and the sponsors assume with the project. If the sponsors have agreed to give back any previously earned benefits to the project should the venture lack enough cash to meet expenses in the future, a clawback is possible. This would mean that dividends might be issued in one quarter when cash flow is enough to cover all obligations, but those same dividends will be recalled through the next quarter when cash flow is not adequate.

The next example is the general partner clawback. This method is common for private partnership. A partnership formed for a certain project like group of investors who want to play the stock market as a group. General partners are equal in the gamble and have equal responsibilities. When a benefit is realized from action on different stock markets, all will share equally in the profit. At the same time, all members will have to return fraction of the earnings on their previous benefits if loss is incurred.

Lastly is the limited partnership clawback, which has a slight difference in the partnership arrangement. This may include some partners listed as a general partner while some are listed as limited partners. General partners invest more on a project and will earn greater shares on any produced benefit. Limited partners will receive an amount depending on the amount of share they contributed.

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