Good leaver and bad leaver
What Good leaver and bad leaver means, how it works, a worked example, the mistakes we see and the questions founders ask.
DefinitionGood leaver and bad leaver are the categories a founders' or shareholders' agreement uses to decide what a departing founder keeps and the price at which their shares are bought back.
Founders usually hold all their shares from incorporation, so the agreement decides what happens when one of them leaves. A good leaver, typically someone who leaves because of death, disability or serious illness, or who is asked to step aside without wrongdoing, keeps their vested shares or sells them at fair value, and the unvested part is bought back at face value. A bad leaver, typically someone who leaves after fraud, a serious breach of the agreement or dismissal for cause, may have to sell even vested shares back at face value. You meet these terms in a founders' agreement, in the shareholders' agreement at the first priced round and in ESOP schemes for employees. What it means for you: the definitions decide real money, so agree them while they are hypothetical, and put the buy-back right in the Articles so the company is bound.
How Good leaver and bad leaver works
Leaver clauses sit beside vesting. Vesting decides how many of a founder's shares are earned on the day they leave; the leaver definitions decide the price for each part. A common Indian structure: unvested shares are always bought back at face value; vested shares stay with a good leaver, or are bought at fair market value if the others want them back; a bad leaver must sell vested shares too, at face value or at the lower of face value and fair value.
A good leaver is usually defined by the reason for leaving: death, permanent disability or serious illness, being asked to step aside without wrongdoing, or an agreed retirement. A bad leaver is usually defined by misconduct: fraud, a material breach of the agreement or of the IP and confidentiality terms, a criminal conviction, or dismissal for cause. Agreements often treat a voluntary resignation before an agreed date as a bad or intermediate leaver, and they set the buy-back window, who buys and how fair value is fixed.
In India the buy-back is usually done as a transfer of the shares to the other founders or a nominee, because a buy-back by the company itself under Section 68 of the Companies Act is limited by the funds it can use and the conditions it must meet. The right binds the company and a later shareholder only if it is in the Articles. For employees the same ideas appear in the ESOP scheme, as what happens to vested and unvested options on leaving.
Three founders of a Pune SaaS company each hold 30% on four-year vesting with a one-year cliff, and the remaining 10% is an ESOP pool. In month 20 one founder resigns to take a job, and the agreement treats a resignation before month 24 as an intermediate leaver: 12.5% of the company, the 20 of 48 months she has vested, stays with her, and the unvested 17.5% is bought by the other two founders at the ₹10 face value. Had she been dismissed for diverting customers, the bad leaver clause would have let them buy all 30% at face value.
Mistakes we see with Good leaver and bad leaver
- Defining a bad leaver so widely that any resignation counts, which makes a founder's vested shares worth nothing and invites a dispute.
- Leaving the price for vested shares open, so the team argues about fair value on the worst possible day.
- Writing the buy-back as a company buy-back, which Section 68 limits, instead of a transfer to the other founders or a nominee.
- Keeping leaver terms out of the Articles, so a buyer of the leaver's shares is not bound by them.
Last updated 28 October 2026. Checked against the MCA, GST, Income-tax and Trade Marks rules in force for October 2026.
Where you will meet this term
- Founders' AgreementCo-founders who want the split, vesting, roles, IP and leaver terms agreed in writing, with the share terms in the Articles so they bind the company.from ₹9,999
- ESOP Planning & StructuringPrivate Limited Companies that want to hire with equity: pool sizing, a scheme the board can approve, the MGT-14 filing and grants that hold up at exit.from ₹39,999
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Questions founders ask about Good leaver and bad leaver
Is a voluntary resignation a good leaver or a bad leaver?
It depends on the agreement. Many treat a resignation in the first two years as an intermediate or bad leaver, so the founder keeps vested shares but not the rest, and a later resignation as a good leaver. Agree where the line falls while it is still hypothetical.
Who pays for a leaver's shares?
Usually the other founders or a nominee, at face value for unvested shares and at the agreed price for vested ones, because a buy-back by the company itself under Section 68 is limited by the funds it can use. Some agreements let the shares be placed with a new hire instead.
Are bad leaver clauses enforceable in India?
A sale at an agreed price is generally enforceable between the parties, and against the company and later shareholders when it is in the Articles. A clause that works as a penalty, such as losing vested shares for a minor breach, is more open to challenge, so keep bad leaver triggers to serious misconduct.