Why good leaver terms matter to a first-time founder
Leaver terms decide what happens to a departing co-founder’s shares, and they are far easier to agree while everyone still gets on. Without clear good-leaver terms, a co-founder who falls ill could lose shares they earned, or someone who walks away early could keep a large stake that puts off new investors. Investors check these clauses in due diligence, so vague wording can also slow a round.
Examples of good leavers
A co-founder becomes seriously ill in year three. The shareholders’ agreement treats that departure as a good-leaver event. Subject to the agreement and applicable law, they retain vested shares while unvested shares may have to be transferred under the specified terms. Nobody has to invent the answer on the day, which is the worst day to invent it.
Common misunderstanding
People think “good” means popular, or that any resignation is good and any firing is bad. The categories are whatever you wrote. A resignation to join a rival might be a bad leaver even if the goodbye was polite. If the document is silent, you do not have this protection. You have a dispute.
When to use it
Agree good-leaver and bad-leaver definitions together when you first issue founder shares or set up vesting, and before any investment round. Typical good-leaver events include death, serious illness or leaving with board approval. Decide whether good leavers keep vested shares or sell them back at fair value, write it into the shareholders’ agreement or articles and take legal advice for your jurisdiction.