Founder leaver provisions

Leaver provisions decide what happens to a founder’s shares if the founder leaves the company. They are among the most important terms in any investment document, because they can affect ownership, control and the value a founder ultimately receives on exit.

How leaver terms work

• Good leaver. Often death, disability, retirement, a board-approved departure, or dismissal without cause.
• Bad leaver. Often resignation, dismissal for cause, misconduct, fraud, breach of covenant, or an unapproved departure.
• Price mechanics. Shares might transfer at market value, fair value, cost or nominal value — and vested and unvested shares may be treated differently.
• The decision-maker. Who determines leaver status is often as important as the definition itself.
• Interaction. Leaver terms should always be read alongside the service agreement, restrictive covenants and vesting rules.

A short checklist

• Protect vested shares where you can.
• Avoid automatic bad-leaver status for any resignation.
• Require objective evidence — and a cure period — for any alleged breach.
• Be clear on what happens on dismissal without cause, illness or incapacity.
• Check whether the board or an investor can determine status with no safeguards.

Common traps

• Nominal-value transfer triggered by a broad range of events.
• No distinction between vested and unvested equity.
• Bad-leaver status triggered by a minor breach.
• No independent or objective valuation process.

We review founder leaver provisions and explain the real commercial consequences — before signature, while the terms can still change.