Good leaver, bad leaver: define the consequences before the label
There is no universal statutory definition of a good or bad leaver. The documents define the categories, transfer obligations and price, subject to legal limits. A short label can conceal a major financial consequence.
Start with the events and the affected shares
Identify resignation, dismissal, misconduct, illness, death, redundancy and agreed departure. Decide how vested and unvested shares are treated in each situation. Definitions should be precise enough to apply without turning every disagreement into an argument about character.
A clause that treats any resignation as bad-leaver conduct can have a very different effect from one limited to serious misconduct. Consider whether the distinction matches the commercial purpose and whether the consequences are proportionate. Employment rights and share rights interact but are not identical.
Valuation and process matter as much as category
Example: A founder leaves after several years and must transfer vested shares at a price determined by the remaining board. If the board also benefits from a low price, the process needs careful scrutiny. Specify the valuation standard, date, information access and any independent determination.
Clarify who exercises discretion, how conflicts are handled and when payment is due. Check funding and any security for deferred payment. If the company buys the shares, statutory buyback rules may apply. Articles, shareholders' agreement, option plan and employment contract should not provide incompatible answers.
Assess enforceability and tax in context
Leaver provisions can raise issues under contract law, company law, unfair-prejudice principles and, in some cases, the law on penalties or restraints. It is unsafe to declare all discounted transfers unenforceable or all signed clauses automatically valid. The wording and commercial context matter.
Tax consequences can arise on acquisition, restrictions, exercise and disposal. Review employment-related securities rules and any scheme-specific deadlines before implementing a departure. During a dispute, preserve notices and do not assume that removing someone as a director automatically transfers their shares. Negotiate a clear settlement where appropriate, with the scope of releases carefully checked.
Your next steps
- Test each real departure scenario against vested and unvested holdings.
- Define valuation, discretion, conflicts, funding and transfer procedure.
- Review company-law and tax consequences before exercising a compulsory transfer.
Sources and scope
General legal information. The contract, applicable jurisdiction and particular facts can change the outcome. This guide does not replace advice on your individual circumstances.