What can I do if my co-founder stops working but keeps their shares?
By SuLe · Updated 31 May 2026
If your co-founder has stopped working but their shares carry no vesting or leaver conditions, you usually cannot force them to hand the shares back — their role and their shareholding are legally separate. You can remove them as a director or employee, but that does not touch their equity. Your realistic route is a negotiated buyback.
Key facts
- A co-founder's shares and their role (director or employee) are separate legal rights — losing one does not remove the other.
- Only vesting, leaver or compulsory-transfer provisions in your shareholders' agreement or articles can claw shares back.
- Without those provisions, a non-working founder keeps their full stake — even a 50% one.
- You can remove them as a director by ordinary resolution under Companies Act 2006 s.168, but they stay a shareholder.
- Most founder-share disputes settle through a negotiated buyback, not litigation.
Can I just take back my co-founder's shares?
No — not unless your paperwork gives you a mechanism to do so. Once shares are issued, they are the shareholder's property, and there is no automatic rule that a founder who stops contributing loses them.
The only lawful ways shares move back are a compulsory-transfer or leaver clause that triggers on their departure, a reverse-vesting arrangement that lets the company buy back unvested shares, or a voluntary sale they agree to. If none of these exists, the equity stays where it is.
This is the hard lesson founders learn too late: the time to control what happens to a leaver's shares is before anyone leaves, in the shareholders' agreement.
Why are shares and role treated separately?
Because a co-founder typically wears three hats, and each is governed by different law. As an employee they can be dismissed; as a director they can be removed; as a shareholder they own equity.
Removing the first two hats does nothing to the third. You can vote them off the board and end their employment, and they will still hold exactly the same percentage of the company the next morning. Their voting rights, dividend entitlement and slice of any exit all survive.
Understanding this separation is what stops founders from spending months on the wrong fight — chasing a "removal" that was never going to move the cap table.
What can I actually do if there are no leaver provisions?
Your strongest realistic option is to negotiate a buyback. Founder and shareholder disputes overwhelmingly settle, commonly through a share transfer at a valued or discounted price, wrapped in a settlement agreement with mutual releases.
Approach it commercially: an inactive founder holding dead equity often prefers a clean exit with some cash to an indefinite stalemate. Agree a price or a valuation method, document the transfer, and file the changes.
What you should not do is issue new shares purely to dilute them. Using share issues as a weapon against a shareholder can amount to unfair prejudice under Companies Act 2006 s.994 — handing your co-founder a claim against you rather than solving the problem.
Can removing them from the board change the equity split?
No. Removing a co-founder as director or employee changes control and stops their salary, but leaves the shareholding untouched.
That said, it is often still worth doing. It stops an absent founder from voting on the board, drawing pay for work they are not doing, or blocking day-to-day decisions. It also clarifies who is actually running the company when you come to negotiate the buyback.
Just be clear-eyed about what it achieves: cleaner governance and lower cost, not a smaller cap table entry for the person who left.
| Action | What it removes | What it leaves untouched |
|---|---|---|
| Remove as director (s.168 ordinary resolution) | Board vote, director's fees, control of decisions | Their shares and shareholder rights |
| End their employment (dismissal process) | Salary, employee duties and access | Their shares and shareholder rights |
| Trigger a leaver/vesting clause (if one exists) | Some or all unvested shares | Any vested shares they have earned |
| No leaver provisions at all | Nothing automatically | The entire shareholding |
Worked example
Nadia and Callum co-founded a femtech app, splitting equity 50/50 with no vesting and no leaver clause. Eighteen months in, Callum quietly stops contributing but wants to keep his half.
Nadia removes Callum as a director by ordinary resolution and ends his contract — but his 50% stays his, because nothing in their documents lets the company reclaim it. Rather than litigate, they negotiate: Callum transfers 35% back for a modest agreed payment, keeps 15% as recognition of his early work, and signs a settlement agreement. Nadia keeps control and a clean cap table; the fight that could have cost six figures is closed in weeks.
Where founders go wrong
Assuming "leaving" means losing shares
— it does not, unless a clause says so. The default is that the leaver keeps everything.Trying to dilute the inactive founder out
— issuing shares to squeeze them can be unfair prejudice and rebound as an s.994 claim against you.Confusing removal with a cap-table change
— voting someone off the board feels decisive but leaves the equity exactly where it was.Never putting vesting in place
— the whole problem is preventable at incorporation for the cost of a well-drafted shareholders' agreement.
Related questions
Can I force my co-founder to sell their shares?
Only if your shareholders' agreement or articles contain vesting, leaver or compulsory-transfer provisions that trigger on their departure. If they don't, the shares are the co-founder's property and you cannot compel a sale — your realistic route is to negotiate a voluntary buyback at an agreed price. [More: Can we buy back shares from a co-founder who has left?]
Does removing my co-founder as a director take away their shares?
No. A director's role and a shareholder's equity are separate legal rights. Removing someone from the board under Companies Act 2006 s.168 stops their control of decisions and their director's salary, but leaves their shareholding exactly as it was. [More: How do I remove a co-founder or director legally?]
Can I just issue new shares to dilute my inactive co-founder?
Issuing shares purely to punish or squeeze out a co-founder is dangerous — it can amount to unfair prejudice under Companies Act 2006 s.994 and hand them a court claim against you. Dilution as a weapon usually backfires; a negotiated buyback is safer.
How do I avoid this with my next hire or co-founder?
Put reverse vesting and good-leaver/bad-leaver provisions in place from day one, so unvested shares can be bought back if someone leaves early. It costs little at the start and is the single most effective protection against the inactive-founder problem. [More: What is founder vesting and how does it work in the UK?]
A stuck co-founder holding dead equity can quietly stall your next raise, because investors read an unaligned cap table as risk. A SuLe solicitor can map what your shareholders' agreement and articles actually let you do, and structure a clean buyback. Book a free consultation about your situation and get a regulated startup lawyer on it before it hardens into a dispute.
Keep reading: How do I remove a co-founder or director legally? · Can I fire a co-founder who is also an employee? · What happens to a co-founder's shares if they leave? · What is founder vesting and how does it work in the UK? · What are good leaver and bad leaver provisions? · Can we buy back shares from a co-founder who has left?
Primary sources: Companies Act 2006
