When a cofounder is leaving, equity follows one line: vested shares stay theirs and unvested shares go back to the company. Your vesting schedule and any good leaver or bad leaver terms you signed decide the exact outcome. This is general information, so check your own documents with a lawyer.
What happens to vested and unvested shares?
If a founder leaves before a typical four-year grant has vested, the company can usually buy back the unvested part at the lower of cost or fair market value, according to Cooley GO. Vested shares are harder. As Kruze Consulting points out, you can end up with someone who no longer works there owning a real slice of the company. An investor or the board may offer to buy that stock, but the founder does not have to sell.
| Share status | What usually happens | Who ends up with it |
|---|---|---|
| Unvested | Company buys back at lower of cost or fair market value | The company, for new hires |
| Vested | Founder keeps it unless a leaver or buyback clause applies | The departing founder |
| Vested, with buyback right | Company or investor may buy at the agreed price | Buyer, or the founder if no sale |
What are good leaver and bad leaver terms?
They are clauses that change what a departing founder keeps, depending on why they left. There is no fixed legal standard. Each company defines the categories with its lawyers, as Ledgy notes.
- Good leaver. Leaves for reasons outside their control, such as illness or redundancy, or by mutual agreement. Usually keeps vested shares and is bought out at fair market value.
- Bad leaver. Resigns early or is dismissed for cause. Can lose equity, including vested shares, and is often forced to sell back at nominal value or the original price.
Agree these definitions while you still get on. Once the relationship sours, nobody agrees on who counts as "good".
What is dead equity and how do you fix it?
Dead equity is stock held by someone who no longer works on the company. A departed founder with a large vested stake is the usual source.
Perkins Coie and others describe it as a serious warning sign for investors, especially when a passive ex-founder owns more than an active one. After a bitter exit, it can also hand votes to someone who blocks decisions.
Vesting for every founder from day one prevents most of it. Once it exists, the usual fix is a secondary sale: an incoming or existing investor buys the departed founder's shares directly. The founder gets cash, the investor reaches their target stake, and nobody else is diluted.
How do you prepare before anyone leaves?
Write the terms down at the start, so a departure means following a clause.
- Agree how to split equity between cofounders.
- Attach a cofounder vesting schedule and cliff to every founder grant.
- Define good and bad leavers, and any buyback rights, with a lawyer. Our founders agreement templates give you a first draft to bring.
- Use the cofounder agreement checklist to see where each term belongs.
A Blueprint records what you agreed about equity and leaving in one signed document. If the exit is already happening and the relationship is strained, our cofounder conflict resolution guide covers how to keep the split from turning into a dispute.
Frequently asked questions
- Does a cofounder keep their equity if they leave?
- They keep whatever has vested. Under a standard vesting schedule, unvested shares go back to the company. A co-founder who leaves after one year of a four-year schedule usually keeps about a quarter of their grant and gives up the rest, unless a leaver clause in the agreement says otherwise.
- What is the difference between a good leaver and a bad leaver?
- A good leaver exits for reasons outside their control, such as illness or redundancy, or by mutual agreement, and usually keeps vested shares at fair value. A bad leaver resigns early or is dismissed for cause and may have to sell shares back at nominal or original cost, losing the growth.
- Can you take back a cofounder's vested shares?
- Not on your own. Vested shares belong to the person who earned them. The company or an investor can offer to buy them, but the departing founder does not have to sell unless a leaver or buyback clause in your signed agreement says so. A lawyer can tell you what your documents allow.
- What is dead equity on a cap table?
- Dead equity is stock held by someone who no longer works on the company, most often a departed founder. Investors see a large dead-equity stake as a warning sign, because it dilutes the people still building, limits equity for new hires and can complicate the next funding round.