How Does an Earnout Deal Impact Equity Investor's Ownership Levels?

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Be careful not to conflate the rights of the acquisition vehicle with the individual rights of investors in the acquisition vehicle. Once the vehicle has contracted with a Seller to make the acquisition, and if there are earn-out, indemnification or other post-closing financial terms owed to the Buyer (acquisition vehicle) under the Purchase Agreement, those rights and claims belong to the entity which was the Buyer (usually a corporation or an LLC). Investors in that entity have an ownership interest in a percentage of the total stock or membership interests issued by the acquisition vehicle to its founders and investors. They hold their ownership rights individually, and the percentage of interest that those rights represent reflect their individual rights in the P&L of the acquisition vehicle (absent some other contractual allocation of P&L). So, if A owns 20% of the acquisition vehicle, and the acquisition vehicle has $1 Million of cash claims against the Seller due to an earnout or breach of the agreement, then that $1 Million goes into the acquisition vehicle, but A only receives 20% of every dollar distributed out to the equity owners based upon their ownership, and that percentage of interest doesn't change unless A subsequently buys more equity, or sells some of his to another person..