VC & PE Glossary
What Is Good Leaver / Bad Leaver?
Updated
Definition
Good leaver and bad leaver clauses define how equity is treated when someone leaves—rewarding acceptable exits with fair retention and penalizing misconduct or unapproved departures.
Useful for: Founders, Operators
Good leaver / bad leaver provisions split departure scenarios into two buckets—each with different rules for vested and unvested equity.
How it works
Shareholder or employment agreements list events that qualify as good leaver (termination without cause, death, disability, agreed retirement) versus bad leaver (cause termination, gross misconduct, breach of non-compete, unapproved resignation). Good leavers usually retain vested shares and may sell unvested or repurchased shares at fair market value. Bad leavers forfeit unvested equity and repurchase vested shares at par or a discount. UK startup docs popularized explicit labels; US deals embed similar concepts in repurchase and forfeiture clauses without always using the terms. Leaver rules interact with founder vesting and acceleration on change of control.
Why it matters
- Founders: Negotiate definitions before Series A—“cause” and “good reason” should be narrow and clear.
- Operators: Senior hires with significant equity should counsel-review leaver language alongside vesting.
- Investors: Standardized leaver mechanics reduce litigation risk and keep cap tables clean for exits.
Common mistake
Treating leaver clauses as boilerplate. A vague “cause” definition lets boards reclassify departures in ways that wipe equity.
Related ideas
Good leaver, vesting schedules, share repurchase, non-compete enforcement, and acceleration triggers.
Related terms
- Founder Vesting — Founder vesting is a schedule that determines when founders earn their equity over time, usually tied to continued service at the company. Unvested shares can be repurchased if a founder leaves early.
- Good Leaver — A good leaver is an employee or founder who departs on approved terms—such as resignation for approved reasons or termination without cause—and retains more favorable equity treatment than a bad leaver.
Common questions
Short answers for founders, LPs, and operators