A good leaver bad leaver clause decides what happens to your shares if you leave the company early. Good leavers, those who leave for reasons outside their control, usually keep what they have earned. Bad leavers, those who quit without cause or are fired for misconduct, can lose vested and unvested shares alike.
What counts as a good leaver?
A good leaver is someone who leaves for a reason the company did not choose and could not blame them for: redundancy, ill health, retirement, a mutually agreed exit, or being let go without cause. The label matters because it decides how kindly the cap table treats their shares on the way out.
Most shareholders agreements and founder agreements list these triggers by name rather than leaving them to a judgment call after the fact. Common good leaver triggers include:
- Redundancy, or the company closing out their role
- Long term illness or incapacity
- Death
- Retirement at a reasonable age
- Termination without cause
- A mutually agreed departure, such as a planned step back
Naming the triggers in advance stops a messy exit from turning into an argument about motive. If the agreement already says illness is a good leaver event, nobody has to debate how sick is sick enough once someone is already going through it.
What counts as a bad leaver?
A bad leaver is someone who leaves in a way the other shareholders see as a breach of the deal: resignation without cause inside an agreed term, dismissal for cause, or a serious breach of the agreement. Bad leaver status brings the harsher outcome, and its triggers are usually just as specific.
Typical bad leaver triggers:
- Resignation inside an agreed minimum term, with no cause
- Dismissal for gross misconduct or fraud
- Material breach of the shareholders agreement, founder agreement, or employment contract
- Competing with the company after leaving, where a non-compete applies
- Insolvency or bankruptcy of the individual, in some agreements
Some agreements add a third bucket, often called intermediate leaver, for departures that do not sit cleanly in either box. That bucket exists because real departures are messier than two labels can hold, and a well drafted agreement should say what happens when the parties cannot agree which one applies.
What happens to your shares in each case?
Good leavers typically keep their vested shares, or get bought out at fair market value. Bad leavers can be forced to sell back even vested shares, often at nominal value or at the price they originally paid, far below what the shares are worth once the company has grown.
| Trigger | Vested shares | Unvested shares |
|---|---|---|
| Good leaver (redundancy, illness, death, no cause) | Kept, or bought back at fair market value | Usually forfeited, since they were never earned |
| Bad leaver (resignation without cause, dismissal for cause, breach) | Bought back at cost or nominal value, sometimes forfeited outright | Forfeited |
| Intermediate or undefined leaver | Negotiated, often at a value between the two | Usually forfeited |
The exact numbers sit in the shareholders agreement or articles of association, not in general law, so two companies can use identical labels and pay completely different amounts. Read the valuation mechanism, not just the leaver category, before you sign anything.
How do leaver clauses interact with vesting?
Vesting decides how much equity you have earned by a given date. Leaver clauses decide what happens to the shares you already earned once you actually walk out, which vesting on its own does not cover.
A standard four year schedule with a one year cliff means you earn nothing if you leave before the first anniversary, whatever your reason for leaving. After the cliff, the shares you have vested are genuinely yours in theory, and the leaver clause decides whether leaving badly can still take them back. Two cofounders can sign identical vesting schedules and end up with very different outcomes if one of them is pushed out for cause three years in rather than made redundant on the same day.
What should you put in writing before anyone leaves?
Agree the leaver categories, their triggers, and the buyback price formula before anyone is actually leaving, while the decision still feels hypothetical. Wait until someone is walking out the door and you end up negotiating the clause and the exit at the same time, usually with the two of you no longer on the same side.
At minimum, put in writing:
- Who decides which leaver category applies, and what happens if you disagree
- The exact price formula for each category: fair market value, cost, or nominal value
- How long the company has to pay for the shares once it buys them back
- Whether unvested shares are forfeited automatically or need a separate decision
If you are not sure whether your current agreement covers this, the cofounder alignment check is a fast way to see where your assumptions differ before a departure forces the question. For related ground, see how equity gets handled when a cofounder leaves, and the agreement templates that cover leaver clauses alongside vesting.
Frequently asked questions
- What is the difference between a good leaver and a bad leaver?
- A good leaver departs for a reason outside their control, such as redundancy, illness, or being let go without cause, and usually keeps their vested shares. A bad leaver departs by choice without cause, through misconduct, or by breaching the agreement, and can be forced to sell back even vested shares at a reduced price.
- Do good leavers keep their unvested shares?
- Usually not. Unvested shares represent equity you have not yet earned under the vesting schedule, and most agreements forfeit them regardless of why you left. Good leaver status mainly protects the shares you had already vested at the point you left, not the portion still sitting on the vesting clock.
- Can a bad leaver clause take back vested shares?
- Yes. Unlike good leaver provisions, bad leaver clauses can claw back shares that have already vested, often buying them back at cost or nominal value rather than fair market value. This is the main financial difference between the two categories, and it is why the triggers need to be defined precisely in writing.
- Who decides if a departing cofounder is a good leaver or a bad leaver?
- The board or the other shareholders usually decide, following whatever process the shareholders agreement sets out, such as a vote or a named decision maker. Because this judgment call can be contested, well drafted agreements narrow it by listing specific triggers in advance, leaving as little room for argument as possible.