Why bad leaver terms matter to a first-time founder
Investors usually expect leaver terms in the shareholders’ agreement or articles, and the bad leaver definition is the part most often fought over. Common triggers include dismissal for misconduct, serious breach of contract and, in many agreements, resigning within an agreed period. A vague definition invites a dispute when someone leaves; a harsh one can make a co-founder feel that resigning for honest reasons will cost them everything they earned.
Examples of bad leavers
A co-founder takes the product’s code to a new company in month eighteen. The agreement treats that departure as a bad-leaver event. It may require the departing founder to transfer some shares at the price or formula it specifies, subject to applicable law. Without an enforceable clause, the company cannot invent that outcome after the event.
Common misunderstanding
People think the label is an insult you can apply later, or that vesting alone handles it. Vesting stops the unvested part. A bad-leaver clause can reach further, into shares they already earned, and only if you wrote it. Using it cynically, to force out someone who merely disagreed, is how the clause gets a reputation and a lawsuit.
When to use it
Agree leaver terms when you first issue founder shares, not when someone is already leaving. Typical triggers include misconduct, serious breach, joining a competitor and resignation within an agreed period, but which ones apply and what price follows is a negotiation, best done with a lawyer who knows your jurisdiction. The label is mainly UK and European; US documents usually handle it through repurchase rights and “for cause” definitions.