What are good leaver and bad leaver provisions?
By SuLe · Updated 26 May 2026
Good leaver and bad leaver provisions are contract terms that decide what price a departing founder or employee gets for their shares, based on how and why they leave. A good leaver typically keeps their vested shares or sells at market value; a bad leaver can be forced to sell at the lower of cost and market value — often close to nothing.
Key facts
- Good and bad leaver are contractual labels defined in your shareholders' agreement or articles — the Companies Act 2006 does not define them.
- Good leavers (death, serious illness, dismissal without cause) usually keep vested shares or sell at market value.
- Bad leavers (early resignation, dismissal for cause) can be forced to sell at the lower of cost and market value.
- The definitions are entirely negotiable, which is exactly why they must be drafted precisely and agreed in advance.
- Leaver provisions price the vested shares; unvested shares are already recoverable at nominal value under your vesting mechanics.
What is the difference between a good leaver and a bad leaver?
The difference is the reason for leaving, and it determines the price. Both are labels your documents attach to a departure — nothing in company law assigns them automatically.
A good leaver is someone who leaves for reasons the founders agreed should not be punished: death, serious illness or incapacity, and usually dismissal without cause or redundancy. They typically keep their vested shares, or are bought out at fair market value.
A bad leaver is someone whose departure the founders wanted to discourage: resignation before an agreed date, or dismissal for cause such as gross misconduct or serious breach of the founders' agreement. A bad leaver can be compelled to sell at the lower of cost and market value — for founder shares bought at a fraction of a penny, that means walking away with almost nothing.
Who decides which category applies?
Your documents decide the rules; the board usually applies them to the facts. The shareholders' agreement or articles set out the trigger events, and someone — typically the board, sometimes with the leaver excluded from the decision — matches the departure to a definition.
That is precisely why the drafting matters more than the labels. A vague clause that says "the board may treat a leaver as a bad leaver" invites a dispute at the worst possible moment.
Good drafting lists concrete events, defines "cause", and sometimes adds a discretion for the board to promote a bad leaver to good leaver treatment — never the other way around. Some agreements add an intermediate leaver tier for time-based softening.
What price does each type of leaver get?
Pricing is the whole point of the provisions, and it is fully negotiable. The common pattern rewards staying and neutralises the reward for leaving early.
Good leavers keep vested shares outright or sell them at fair value, often set by an independent valuation if the parties cannot agree. Bad leavers sell at the lower of cost and market value, which strips out any uplift they did not stay to earn.
| Leaver type | Typical trigger events | Unvested shares | Vested shares |
|---|---|---|---|
| Good leaver | Death, serious illness, dismissal without cause | Recovered at nominal value | Kept, or sold at market value |
| Bad leaver | Resignation before an agreed date, dismissal for cause | Recovered at nominal value | Forced sale at the lower of cost and market value |
| Intermediate (if used) | Early but blameless departure | Recovered at nominal value | Sold on a sliding scale between the two |
How are the shares actually taken back?
A definition on paper still needs a mechanism to move the shares. Under Companies Act 2006 Part 18, a company buyback must normally be funded from distributable profits or a fresh issue, the shares must be fully paid, and shareholders must approve it with the seller unable to vote.
Early-stage companies rarely have distributable profits, so the more common route is a compulsory transfer to the remaining founders or an incoming hire — a stock transfer form, with 0.5% stamp duty only where the price exceeds £1,000. Bad-leaver prices usually fall below that threshold.
The leaver provisions and the transfer machinery must line up. A beautifully drafted definition is worthless if nothing in the documents forces the shares to actually change hands.
Worked example
Ade and Fenella build a veterinary-practice software startup, each holding 400,000 ordinary shares of £0.01, under a shareholders' agreement with 4-year vesting and leaver provisions. Ade paid £4,000 for his shares.
In year three, Ade resigns to join a competitor before his agreed commitment date — a bad leaver event under the agreement. His unvested shares (a quarter of his stake, 100,000 shares) go back at nominal value, £1,000. His 300,000 vested shares are bought at the lower of cost and market value; cost works out to £3,000, well below the £30,000 market value, so £3,000 is paid.
Had Ade left as a good leaver, he would have kept those 300,000 vested shares or sold them at the £30,000 market figure — a £27,000 difference driven entirely by the label.
Where founders go wrong
Leaving "cause" undefined.
If your bad leaver trigger turns on dismissal "for cause" but never defines it, you have built the argument into the clause. Spell out the events.Pricing that looks like a penalty.
A forced sale at nil for any departure, however innocent, is harder to enforce than a considered lower-of-cost-and-value formula. Keep it reasonable.Forgetting the mechanism.
A leaver definition without a compulsory transfer or buyback route behind it cannot actually move the shares.Negotiating after someone gives notice.
Once a founder is leaving, every incentive points the wrong way. These terms belong in the shareholders' agreement from day one.
Related questions
Does the Companies Act define a good or bad leaver?
No. Good leaver and bad leaver are purely contractual labels, defined in your shareholders' agreement or articles. The Companies Act 2006 is silent on them, which is why the definitions are negotiable and why sloppy drafting causes disputes when someone actually leaves. [More: What should a shareholders' agreement include for a UK startup?]
What price does a bad leaver get for their shares?
Whatever your documents specify — most commonly the lower of what they paid (cost) and current market value. For founder shares issued at a nominal fraction of a penny, that usually means near-nothing, which is the point: it removes the reward for leaving early or being dismissed for cause.
Can being dismissed make you a bad leaver?
It depends on why. Dismissal without cause — redundancy, a no-fault parting — is usually a good leaver event. Dismissal for cause, such as gross misconduct or breach of the founders' agreement, is typically a bad leaver event. The distinction should be spelled out, not left to argument. [More: Can I fire a co-founder who is also an employee?]
Do good and bad leaver terms apply to vested or unvested shares?
Mainly the vested ones. Unvested shares are already recoverable at nominal value under your vesting mechanics. Leaver status sets the price of the vested portion — the shares the founder has genuinely earned — so the two provisions work together, not instead of each other. [More: What is reverse vesting?]
Are bad leaver provisions enforceable in the UK?
Generally yes, where they are clearly drafted and agreed in advance as a commercial bargain between shareholders. Terms that look like a penalty rather than a genuine pre-agreed price carry more risk, so the pricing and trigger events should be reasonable and precise. Take advice on the drafting.
Leaver clauses are quietly the highest-stakes lines in a shareholders' agreement — the gap between a good and bad label can be tens of thousands of pounds and a lawsuit. A SuLe solicitor can draft leaver provisions that hold up, or tell you where you actually stand when a departure is already happening. Get your founder documents reviewed — book a free consultation and know the price before anyone leaves.
Keep reading: What happens to a co-founder's shares if they leave? · What is reverse vesting? · What is a vesting cliff? · What should a shareholders' agreement include for a UK startup? · Can we buy back shares from a co-founder who has left? · How do I remove a co-founder or director legally?
Primary sources: Companies Act 2006 · GOV.UK — Running a limited company
