Can I fire a co-founder who is also an employee?
By SuLe · Updated 3 June 2026
You can fire a co-founder from their job, but that only removes one of their three roles — they are usually also a director and a shareholder, and each needs handling separately. Dismissal follows employment law (a fair reason and process); the board seat needs removal or resignation; the shares move only if your documents allow it.
Key facts
- A co-founder typically wears three hats: employee, director and shareholder — each governed by different rules.
- Dismissing the employee does not remove the director or reclaim the shares.
- Dismissal needs a fair reason and a fair process; getting it wrong risks tribunal claims, including discrimination.
- The directorship ends by resignation or an ordinary resolution under Companies Act 2006 s.168.
- A botched dismissal creates claims that become bargaining chips in the shareholder negotiation — so sequence carefully.
Which "hats" does a co-founder wear?
Three, and separating them is the whole game. As an employee, the co-founder has a contract and employment-law protections. As a director, they sit on the board with statutory duties. As a shareholder, they own equity.
Each role is created and ended in a different way. You cannot collapse them into a single "you're fired" moment — doing so is exactly how founders create legal messes.
So the first task is not action but mapping: write down which hats your co-founder wears, and what your documents say about ending each one.
How do I handle the employment side fairly?
Treat it like any other dismissal, because in law it is one. You need a potentially fair reason — for example, conduct, capability or redundancy — and a fair procedure to match.
Ordinary unfair dismissal claims generally require a qualifying period of continuous service, but some claims do not. Discrimination protections, for instance, apply from day one, so a dismissal that looks tied to a protected characteristic is risky regardless of tenure. Notice and any contractual process must be honoured too.
Rushing this is the classic mistake. An unfair or discriminatory dismissal hands your co-founder a live claim — and that claim becomes leverage in every conversation that follows about their shares.
Does firing them remove them from the board or take their shares?
No to both. Ending employment does nothing to the directorship or the shareholding — they are separate legal roles.
To remove the director, you need them to resign or you pass an ordinary resolution under Companies Act 2006 s.168, with 28 days' special notice. To move the shares, you need a leaver or compulsory-transfer provision to trigger, or a negotiated sale.
If your shareholders' agreement has no leaver mechanics, the co-founder keeps their whole stake even after you have removed them as an employee and a director. This is the single most common surprise in founder fallouts.
How should I sequence the three processes?
Deliberately, and usually with advice, because the three interact. A clumsy dismissal can generate employment claims that poison the share negotiation; an aggressive share grab can look like unfair prejudice.
A common approach is to line them up together: a fair dismissal process, a clean removal or resignation from the board, and a negotiated share buyback documented in a settlement agreement that also settles any employment claims. That way each hat is dealt with, and mutual releases draw a line under all of it.
The order and framing matter more than speed. Getting one step wrong rarely just costs you that step — it arms the other side for the rest.
| Role ("hat") | How it ends | Effect on the others |
|---|---|---|
| Employee | Fair dismissal: reason + process + notice | None automatically |
| Director | Resignation or s.168 removal (28 days' notice) | None automatically |
| Shareholder | Leaver/transfer clause or negotiated buyback | None automatically |
| All three | Coordinated exit + settlement agreement | Mutual releases close the loop |
Worked example
Grace and Tomasz co-founded an edtech startup; Tomasz is a co-founder, a director, an employee on a salary, and a 40% shareholder. His performance has collapsed and Grace wants him out.
Grace runs a proper capability process with a fair reason, notice and a right of reply, rather than a snap dismissal that could spark a claim. Separately, the board arranges Tomasz's resignation as a director. His 40% does not move automatically — there are no leaver provisions — so Grace opens buyback talks. The whole exit is wrapped in a settlement agreement: Tomasz transfers most of his shares for an agreed sum and waives employment claims, and everyone signs mutual releases.
Where founders go wrong
Treating "fired" as the end of it
— the board seat and the shares survive dismissal and need their own steps.Rushing the dismissal
— an unfair or discriminatory process creates claims that become leverage over the share deal.Assuming dismissal reclaims equity
— without leaver provisions, the co-founder keeps their full stake.Acting without sequencing
— handle employment, board and shares in a planned order, ideally with advice, or one mistake infects the rest.
Related questions
Does firing my co-founder remove them from the board?
No. Ending someone's employment does not end their directorship. You need a separate step — usually resignation or removal by ordinary resolution under Companies Act 2006 s.168 — to take them off the board. And neither step touches their shares. [More: How do I remove a co-founder or director legally?]
Can I dismiss a co-founder employee without a process?
It's risky. Dismissal law expects a fair reason and a fair procedure, and rushing it can create tribunal claims — including discrimination risks, which apply from day one. A badly handled dismissal often poisons the wider shareholder negotiation that follows. [More: How do I legally dismiss an employee in a UK startup?]
Will firing them let me take their shares?
No. Shares move only through leaver or compulsory-transfer provisions in your shareholders' agreement or articles, or a voluntary sale. If those provisions don't exist, the co-founder keeps their full stake whatever happens to their job. [More: What can I do if my co-founder stops working but keeps their shares?]
Should I get advice before firing a co-founder?
Almost always. Because you're handling employment, board and shareholder issues at once, a mistake on one front creates leverage against you on the others. Advice helps you sequence the three processes so a botched dismissal doesn't wreck the share negotiation.
Firing a co-founder is three legal problems in a trench coat, and mishandling the employment step can cost you the whole share negotiation. A SuLe solicitor can plan the sequence, keep the dismissal defensible, and roll it into a settlement that closes the equity too. Book a free consultation about your situation before you have the conversation.
Keep reading: How do I remove a co-founder or director legally? · What can I do if my co-founder stops working but keeps their shares? · How do I legally dismiss an employee in a UK startup? · When do employees get unfair dismissal rights in the UK? · What is a settlement agreement? · What are good leaver and bad leaver provisions?
Primary sources: Companies Act 2006
