What happens depends entirely on whether reverse vesting was in place before the founder left, and if it was, whether the departure counts as a good leaver or a bad leaver under the founders' agreement. Without either of those mechanisms written down in advance, a departing founder typically keeps every share they held, whatever the circumstances of their leaving. This article covers the consequence of a founder walking away, not how to structure the split and vesting in the first place, which our companion piece on how to split equity between co-founders already covers.
> Quick answer: If the founders' agreement included reverse vesting, unvested shares are typically bought back by the company when a founder leaves, at nominal or low value, leaving the departing founder with only what had vested. Good leaver and bad leaver definitions decide whether even vested shares are treated more or less generously. Without vesting in the agreement at all, a departing founder usually keeps everything, a stake investors will question closely, and one that can stall or derail the next funding round.
The default position with no vesting in place
Where a founders' agreement was never signed, or was signed without a vesting schedule, shares are simply owned outright from the point they were issued. A founder who leaves after three months, for whatever reason, keeps their full allocation exactly as if they had stayed for years. There is no automatic legal mechanism that claws back founder shares just because someone left early. Company law does not do this for you. It has to be built into the agreement in advance, and if it was not, the company generally has no contractual right to require the departing founder to give anything back.
This is the scenario that creates the most friction among the remaining founders, because it is felt as obviously unfair, someone who contributed a fraction of the expected time walks away with the same stake as someone who stayed for the whole journey, but unfair is not the same as legally remediable. Without a pre-agreed mechanism, the only route to changing the position is a negotiated agreement with the departing founder, who has little incentive to give anything up voluntarily.
How reverse vesting changes the outcome
Where reverse vesting was built into the founders' agreement from the start, commonly a four-year schedule with a one-year cliff, the outcome is very different. Shares that have not yet vested at the point of departure are typically subject to the company's right to buy them back, usually at nominal value or the price originally paid, effectively cancelling the unvested portion rather than leaving it with the departing founder. If the founder left before the one-year cliff, this can mean forfeiting the entire allocation. If they left partway through year three, they typically keep whatever fraction had vested by that point and lose the rest.
This is precisely why reverse vesting matters more than the exact percentage agreed at the outset, a point our companion article on splitting equity between co-founders covers from the drafting side. The mechanism does the fairness work automatically, without requiring a negotiation at the point someone actually leaves, which is the worst possible moment to be negotiating anything with a departing co-founder.
Good leaver versus bad leaver, and why the label matters
Many founders' agreements go a step further and distinguish between a good leaver and a bad leaver, applying different consequences to each. A good leaver, commonly someone leaving for reasons like ill health, or in some structures anyone leaving without fault on their part, is typically treated more generously, sometimes keeping vested shares in full and occasionally retaining some right to a portion of unvested shares depending on how the agreement is drafted. A bad leaver, commonly someone who resigns without good reason, is dismissed for cause, or breaches the agreement, typically faces harsher terms, sometimes losing even vested shares back to the company at a reduced price, depending on how the clause was drafted.
The exact definitions and consequences vary significantly between agreements, and getting this wording right at the outset matters, because it is decided in advance, while relations are good, precisely so it does not need to be argued about in the moment a founder actually leaves under difficult circumstances.
What an investor does when they see a departed founder still on the cap table
This scenario is a recurring and unwelcome discovery during due diligence ahead of a funding round. An investor working through a due diligence request list checks the cap table against the current team, and a name that no longer appears to be working for the company but still holds a meaningful, seemingly fully vested stake, is one of the first things flagged for a follow-up question.
The investor's practical response varies with how serious the position is. At minimum, expect detailed questions about the circumstances of the departure and whether the company has any route to resolve the position. In more serious cases, particularly a large stake with no vesting ever in place, an investor may make cleaning up the cap table a condition of proceeding, sometimes requiring the remaining founders to negotiate a buyback, occasionally at their own cost, before the round can close. This is one of the clearest, most concrete costs of never having put reverse vesting in place, showing up not as a legal claim but as friction and cost at exactly the moment the company most needs the round to close smoothly.
Leaver scenarios and what typically happens to the shares
| Scenario | Typical outcome |
|---|---|
| No vesting agreement at all | Founder keeps full allocation regardless of when or why they left |
| Reverse vesting in place, left before the cliff | Entire allocation typically forfeited, bought back at nominal value |
| Reverse vesting in place, left partway through the schedule | Vested portion kept, remainder bought back |
| Good leaver, under a drafted agreement | Generally more favourable treatment, terms vary by agreement |
| Bad leaver, under a drafted agreement | Generally harsher treatment, sometimes affecting vested shares too |
Resolving a departure that already happened
If a founder has already left without any of this in place, the honest starting point is that the company has no automatic right to the shares. The practical path is a negotiated settlement, ideally reached while the relationship is merely awkward rather than actively hostile, formally documented and signed rather than left as an understanding. Whatever is agreed should be captured properly, because the next investor will ask about it in exactly the same way they would ask about the original position.
For agreements being put in place from this point forward, whether as a fresh founders' agreement or an amendment recording a settled departure, 99 Data Rooms assembles the document from vetted England and Wales clauses through AI Legal Drafting, covered in our guide to drafting a founders' agreement with AI, a live feature that selects existing clause wording rather than inventing legal language, a distinction covered in assembled clauses vs invented ones. Send the finished document for e-signature: electronic signatures are admissible for most commercial documents in England and Wales, with exceptions including deeds, wills, land transfers and lasting powers of attorney. If access to shared company material needs to end at the same time as the departure, revoke it in one click, gated beforehand so only the intended people could open it in the first place, and keep the resolution alongside the original agreement using key-date tracking so vesting milestones for the remaining founders are visible going forward.
This article is written for England and Wales, where the reverse vesting and leaver conventions described above are common market practice built into the agreement rather than imposed by statute. Outside this jurisdiction, the legal wrapper around a share buyback will differ, but the underlying question, what the agreement actually says happens to the shares when someone leaves, and whether it says anything at all, is the same question to ask of your own arrangement.
Frequently asked questions
Does a departing co-founder automatically lose their shares?
No. Without a specific vesting or leaver mechanism written into the founders' agreement in advance, a departing founder generally keeps their full allocation regardless of the circumstances of their departure. Reverse vesting is what creates a right to buy back unvested shares, and it has to be agreed before anyone leaves.
What is the difference between a good leaver and a bad leaver?
These categories, when defined in a founders' agreement, decide how favourably a departing founder is treated. A good leaver, often someone leaving through no fault of their own, is typically treated more generously than a bad leaver, who resigns without good reason or is dismissed for cause, with the exact consequences set by the specific wording used.
Can a company force a departed founder to give back shares if there was no vesting agreement?
Not automatically. Without a pre-agreed buyback right, the company generally has no contractual basis to require this, and the only route is a negotiated settlement with the departing founder, who has limited incentive to agree without being offered something in return.
Will investors refuse to invest if a former founder is still on the cap table?
Not always, but it is a common flag during due diligence and can slow a round while the position is explained or resolved. In more serious cases, particularly a large unvested stake with no reverse vesting ever in place, an investor may require the cap table to be cleaned up before proceeding.
Is it too late to add reverse vesting after founders have already received their shares?
It is harder, because it usually requires all founders to agree to a new restriction on shares they already hold outright, but it is not impossible where relations remain good. It is far easier and cheaper to build reverse vesting in from the outset than to negotiate it retrospectively.
Draft your founders' agreement with AI
Whatever happened with a past departure, the fix for the future is reverse vesting and clear leaver terms agreed from day one. Assemble a founders' agreement from vetted England and Wales clauses, sign it in the browser, and keep it where the next investor will expect to find it. The free tier gives you three rooms and twenty-five active links, forever, with no card required; the AI drafter and e-signature start on Pro at £19 a month. Start for free.
This article is general information, not legal advice. Founder share disputes carry real financial and tax consequences, and any live departure or dispute deserves review by a qualified adviser before you act.
Sources
- Employment status boundary relevant where a departing founder also held an employment or director role: gov.uk, Employment status, https://www.gov.uk/employment-status
- Electronic signatures, validity and exceptions including deeds, wills, land transfers and lasting powers of attorney: Law Commission, Electronic execution of documents (2019), https://lawcom.gov.uk/project/electronic-execution-of-documents/ ; HM Land Registry Practice Guide 82, https://www.gov.uk/government/publications/electronic-signatures-accepted-by-hm-land-registry-pg82