A bad leaver is a founder or employee who exits a company in circumstances deemed harmful or inappropriate (such as being dismissed for serious misconduct, resigning without notice, or breaching their duties), resulting in them forfeiting some or all of their unvested shares, and sometimes being forced to sell vested shares at a reduced price.
The specific triggers vary by company, but typically include gross misconduct, criminal activity affecting the business, serious breach of contract, resignation without proper notice, or competing against the company.
Your shareholders' agreement should clearly list these situations to avoid disputes later.
When classified as a bad leaver, you'll usually forfeit any unvested shares immediately.
The company or remaining shareholders often have the right to buy back your vested shares, sometimes at their original purchase price (which could be nominal) rather than current market value.
This can mean losing significant value.
A good leaver exits under acceptable circumstances (like redundancy, retirement, or leaving by mutual agreement), whilst a bad leaver departs under problematic conditions.
Good leavers typically keep their vested shares and may retain some unvested shares, whilst bad leavers face much harsher financial consequences.
These clauses protect the company and remaining team members from founders or key employees who leave in ways that harm the business.
They ensure that shares return to the company if someone doesn't fulfil their commitment, maintaining fairness amongst those who stay and continue building value.
Absolutely. During initial negotiations, you can discuss which circumstances constitute bad leaver status and the specific consequences.
Some agreements include "intermediate leaver" categories for grey-area situations, offering middle-ground outcomes between bad and good leaver treatment.
