A cofounder who leaves keeps what has vested and forfeits what has not. Under a standard vesting schedule, unvested shares revert to the company and get reallocated; vested shares stay theirs to keep. That single line — vested versus unvested — decides almost everything. The exact split depends on the vesting terms and leaver clauses you signed at the start.
Vested versus unvested: the crux
Vesting is the mechanism that turns a promise of equity into earned ownership over time. A typical founder grant vests over four years. Leave before the stock fully vests and the company has the right to buy back the unvested portion at the lower of cost or fair market value, according to Cooley GO. Those shares don't vanish — they return to the company and can be handed to a replacement hire or an advisor.
Vested shares are a different story. Once equity has vested, your cofounder owns it. There is not much you can do to claw it back. As Kruze Consulting puts it, the business may end up with someone who no longer works there holding a meaningful slice of the company. Sometimes an investor or the board offers to buy the vested stock. That is optional, not automatic.
Here is the default treatment when a cofounder walks:
| Share status | What usually happens | Who ends up with it |
|---|---|---|
| Unvested | Company repurchases at lower of cost or fair market value | Reverts to the company, reallocated to new hires |
| Vested | Founder keeps it unless a leaver or buyback clause applies | The departing cofounder |
| Vested, with buyback right | Company or investor may purchase at agreed price | Company, investor, or founder if no sale |
The lesson: vesting protects the founders who stay from the free-rider problem — someone collecting ownership for work they never finished.
Good leaver, bad leaver
Vesting sets the baseline. Leaver provisions change what happens on top of it. These clauses, usually written into share or option agreements, define the terms when someone exits. There is no fixed legal standard — companies define the categories with their lawyers, as Ledgy notes.
The split is blunt:
- Good leaver. Someone who exits through circumstances beyond their control — death, disability, redundancy — or by mutual agreement. A good leaver generally keeps vested shares and is bought out at fair market value.
- Bad leaver. Someone who resigns early or is dismissed for cause. A bad leaver can lose the right to keep equity, including vested options, and is often forced to sell back at nominal value or the original subscription price — surrendering all the growth.
That gap is the entire point. Leaver terms reward contribution, stop a departing founder from profiting off value they no longer build, and free up shares to recruit a replacement. Negotiate these definitions before you need them. Once a relationship sours, nobody agrees on who counts as "good."
If you are drafting from scratch, our cofounder agreement checklist covers where leaver and vesting terms belong in the document.
The dead equity problem
Say your cofounder leaves two years in with a large vested stake and no leaver clause forcing a sale. You now have dead equity: stock held by someone no longer working to move the company toward an exit. Departed founders are the main source of it.
Investors hate this. Perkins Coie and others flag a large dead-equity stake as a serious red flag, particularly when a passive ex-founder holds more than an active one. It dilutes the motivated owners, weakens your ability to grant equity to new talent, and — if the split is bitter — hands voting power to someone who can obstruct decisions. It can quietly make a company uninvestable at the next round.
The prevention is vesting, applied to every founder from day one. The fix, once dead equity exists, is usually a secondary sale: your lead investor buys the shares directly from the departing founder. The investor reaches their target ownership, the founder gets liquidity, and the rest of the cap table avoids dilution. Clean, when it works.
Dead equity is a decision you didn't make on time. The four-year schedule and the leaver clause are how you make it early.
Document the agreements before you need them
Every outcome above traces back to paperwork signed at the beginning. Vesting schedule. Cliff. Leaver definitions. Buyback rights. If those documents exist and stay current, a cofounder departure is a clause you follow, not a fight you improvise.
Most partnerships never write this down. They split equity on a handshake, skip the vesting conversation, and discover the terms only when someone is halfway out the door. By then the leverage is gone and the lawyers are expensive. Understanding how a cofounder vesting schedule works — and settling it while you still like each other — is the difference between a mechanical exit and a cap-table crisis.
Turn assumptions into agreements. Decide how you'll split equity between cofounders, attach a vesting schedule to every grant, define good and bad leavers in writing, and keep it current as roles shift. When the day comes that a cofounder leaves — and for many companies it does — the equity question is already answered.
Start with the templates in our resources library and build the agreement before you need it.
Frequently asked questions
- Does a cofounder keep their equity if they leave?
- They keep whatever has vested. Unvested shares almost always revert to the company under a standard vesting schedule. So a cofounder who leaves after one year of a four-year schedule keeps roughly a quarter and forfeits the rest.
- What is the difference between a good leaver and a bad leaver?
- A good leaver exits through circumstances outside their control or by mutual agreement and typically keeps vested shares at fair value. A bad leaver resigns early or is dismissed for cause and can be forced to sell shares back at nominal or original cost, losing the growth.
- Can you take back a cofounder's vested shares?
- Not unilaterally. Vested shares are owned. The company or an investor may offer to buy them back, but the departing founder is not obligated to sell unless a leaver or buyback clause in the agreement says so.
- What is dead equity on a cap table?
- Dead equity is stock held by someone no longer working to grow the company, usually a departed founder. Investors treat a large dead-equity stake as a red flag because it dilutes motivated owners and can complicate future rounds.
- How do you fix dead equity after a cofounder leaves?
- The cleanest route is a secondary sale where an incoming or existing investor buys the departed founder's shares directly. That gives the founder liquidity, gets the investor to their target ownership, and avoids diluting the rest of the team.
