Share termination unit price: Overview, definition, and example
What is share termination unit price?
The share termination unit price refers to the price per unit (or share) that is used to determine the value of a share or unit at the time of termination of a shareholder’s or investor's participation in a program, fund, or agreement. It is often used in investment funds, mutual funds, or business partnerships to calculate the value of an investor's holdings when they exit or redeem their shares. This price is typically determined based on the net asset value (NAV) or the market value of the underlying assets, and it is used to ensure that the investor receives a fair amount for their share at the time of termination.
For example, in a mutual fund, the share termination unit price is the price at which an investor can redeem their shares back to the fund when they decide to sell or withdraw from the fund.
Why is share termination unit price important?
The share termination unit price is important because it ensures that investors are compensated fairly when they decide to exit an investment or terminate their involvement in a fund or company. It reflects the value of the investor’s share at the time of termination, ensuring that the exit price is based on the most up-to-date financial information. For funds and businesses, it provides a clear and standardized method for valuing shares at the point of termination. This helps maintain transparency, fairness, and compliance with investment or business agreements.
Understanding share termination unit price through an example
Imagine an investor in a private equity fund who decides to redeem their shares after several years of investment. The fund determines the share termination unit price by evaluating the current net asset value (NAV) of the assets held by the fund, factoring in any liabilities, and dividing by the number of outstanding shares. If the NAV per share is $100, the share termination unit price would be $100. The investor receives this amount for each share they redeem, ensuring they are compensated fairly for their investment at the time of exit.
In another example, a shareholder in a cooperative society decides to sell their shares when they leave the cooperative. The share termination unit price is calculated based on the cooperative's current financial position, and the shareholder receives payment based on this price, ensuring that their shares are valued appropriately according to the cooperative’s value at the time of termination.
An example of a share termination unit price clause
Here’s how a clause related to the share termination unit price might appear in a contract:
“In the event of termination or redemption of the Participant's shares, the Participant shall be entitled to a payment based on the share termination unit price, which shall be determined by the Fund’s Net Asset Value (NAV) per share at the time of termination. The share termination unit price will be calculated as of the close of business on the date of the termination request, and payment will be made within [specified number of days] following such calculation.”
Conclusion
The share termination unit price is an essential concept for determining the fair value of shares or units when an investor or shareholder exits or redeems their holdings. By ensuring that the termination price reflects the current value of the investment, it guarantees fair compensation for the exiting party while maintaining the integrity and transparency of the investment or business structure. Whether in mutual funds, private equity, or cooperative agreements, understanding the share termination unit price is crucial for both investors and companies to ensure a smooth and fair exit process.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.