A bad leaver is a shareholder who exits the company under conditions that trigger punitive treatment of their equity under a shareholders’ agreement or employment contract — typically loss of unvested shares and mandatory repurchase of vested shares at nominal or fair value less a discount.

How it works

UK and European venture deals often define leaver categories explicitly. A good leaver (death, disability, redundancy, sometimes voluntary departure with board consent) keeps vested shares and may sell at fair market value. A bad leaver (cause termination, material breach, competing business, fraud) forfeits unvested equity and must sell vested shares back at lower of cost or fair value.

US deals achieve similar outcomes through double-trigger acceleration limits, repurchase rights on unvested stock, and restrictive covenants. Founders should read leaver definitions before signing Series A documents — “cause” definitions vary widely.

Investors use bad leaver mechanics to keep cap tables clean when a co-founder departs contentiously without leaving a 30% passive block. Good leaver and bad leaver categories should be symmetric across co-founders — investors rarely accept harsh leaver terms for founders that do not apply equally to early executives holding large stakes.

Why it matters

• Founders: Negotiate cause definitions and cure periods. Ambiguous “bad leaver” triggers create litigation on departure.
• Investors: Ensure leaver provisions align across founders and key employees; inconsistent treatment causes board conflict.
• Operators: HR terminations should follow process that supports cause findings if equity clawback is intended — document performance issues before departure day.

Common mistake

Assuming all unvested stock vanishes automatically on any quit. Without signed leaver/repurchase clauses, departed founders may keep vested shares and create dead equity on the cap table.

Related ideas

Vesting, repurchase right, good leaver, and founder departure.