Good leaver and bad leaver: what happens to your shares if a founder leaves?

In startups, various roles often overlap. A founder can be a director, perform work for the company, and be a shareholder all at once. As long as everyone is building the same company together, this usually causes few problems.

That changes as soon as a founder leaves.

The end of an operational partnership does not automatically mean the end of shareholding. Without additional agreements, someone can stop working for the company while remaining economically involved as a shareholder. In a growing tech company, this can be undesirable, especially when a significant portion of the shares ends up with someone who no longer actively contributes to the business.

That is why so-called leaver provisions are often included. These link the departure of a founder, manager, or employee to consequences for their shares or depositary receipts.

The terms that appear most frequently in this context are good leaver and bad leaver. In addition, there are variants such as the early leaver. The qualification might sound like a label, but the financial consequences can be significant.

What is a leaver scheme?

A leaver scheme determines what happens to shares or depositary receipts when a shareholder's involvement with the company ends.

The starting point is usually that someone who is no longer active within the company must offer their shares to, for example, the other shareholders or another contractually designated party. For employee participation schemes, a similar arrangement may apply to depositary receipts held via a trust office (STAK).

This links two relationships together: the operational relationship with the company and the shareholding.

For startups and scale-ups, this is an important mechanism. After all, in young companies, shares are regularly used to commit founders, managers, and employees to the company for the long term. If someone leaves, the question then arises as to whether it makes sense for that person to retain their full shareholding.

A leaver scheme attempts to provide an answer to that situation in advance.

In this regard, two questions can actually be distinguished. First: must the shares be offered or transferred upon departure? Second: what price does the departing shareholder receive for them?

It is precisely this second question that is often linked to the distinction between a good leaver and a bad leaver.

Good leaver, bad leaver, and early leaver: what is the difference?

There is no single universal definition of a good leaver or bad leaver that works the same for every company. The precise meaning is largely determined by the agreements that the parties have made themselves.

This makes the shareholders' agreement, participation agreement, or depositary receipt holders' agreement crucial.

What is a good leaver?

In short, a good leaver is someone who leaves under circumstances where, according to the agreed terms, there is no reason to apply a heavy discount to their shares.

Under a good leaver arrangement, it is often agreed that the departing shareholder is entitled to the market value of their shares. A good leaver situation can, for example, be linked to a departure after a predetermined period or a departure where the parties reach an agreement on the end of the collaboration in good harmony.

However, the "good leaver" label does not automatically mean that the founder gets their original investment back. The price remains dependent on the valuation scheme that the parties have agreed upon.

That distinction is essential.

Legally speaking, a founder can leave as a good leaver and still be faced with a very low price for their shares if the agreed valuation formula yields little or no value at that time.

What is a bad leaver?

The bad leaver is at the other end of the spectrum.

In a bad leaver situation, the departure is linked to circumstances that the parties wish to sanction more severely. The result is usually that the departing shareholder must offer their shares at a lower price than a good leaver. This could be a percentage of the market value, but also the nominal value or another contractually determined price.

The financial impact can therefore be significant.

It is precisely for this reason that the definition of a bad leaver is important. A provision that is formulated too broadly, subjectively, or unclearly creates room for discussion at the very moment when the relationship between the parties is often already strained.

For this reason, leaver arrangements often align with the concept of "urgent cause" for the termination of an employment relationship. Other criteria also occur, such as culpable conduct, certain breaches, or specific behaviors of the founder or manager involved.

However, the broader the wording, the greater the chance of a dispute over whether a specific situation actually falls under it.

And what is an early leaver?

In addition to good and bad leaver provisions, parties can use additional categories. An example of this is the early leaver.

This category can be relevant when someone leaves the company relatively early. The precise consequences depend on the agreements made.

The important difference is that an early leaver is not necessarily the same as a bad leaver. An early departure can have different contractual financial consequences without there being any conduct that justifies a bad leaver classification.

That distinction played an important role in a 2025 ruling by the Amsterdam District Court.

Amsterdam District Court 2025: bad leaver or early leaver after all?

The importance of an accurate classification is demonstrated by a ruling of the Amsterdam District Court on October 29, 2025, ECLI:NL:RBAMS:2025:8066.

The case revolved around an employee who held certificates through a participation scheme. Upon his departure, a dispute arose regarding the price at which those certificates had to be repurchased.

The employee had offered his certificates at the purchase price. The STAK (Trust Office) subsequently classified him as a bad leaver. A 50% discount was attached to that classification.

The stakes were immediately clear: the question of what type of leaver someone is can have a direct impact on the financial settlement.

However, the court did not uphold the bad leaver classification.

For that classification, the scheme referred to an "urgent cause." According to the court, this was not the case. Moreover, some of the conduct on which the bad leaver classification was based allegedly took place only after the end of the employment contract. Such conduct could therefore not retroactively change the earlier departure into a bad leaver situation.

The employee qualified as an early leaver.

There is an important lesson here for founders and startups. The classification must align with the specific conditions included in the scheme. It is not sufficient that the relationship has deteriorated in hindsight or that a dispute arises later regarding the conduct of the departed participant.

If a significant discount is attached to a bad leaver classification, the precise wording of the trigger becomes all the more important.

It is not just the classification that counts; the repurchase mechanism must also be correct.

The 2025 Amsterdam ruling is interesting for another reason as well.

The dispute was not only about whether the employee was a bad leaver or an early leaver. The contractual manner in which the certificates had to be repurchased also played an important role.

The scheme contained a repurchase mechanism that was triggered automatically. According to the court, that mechanism left no room for an independent offer by the employee outside of that contractual arrangement.

This subsequently had consequences for the legal settlement of the transfer. The court concluded that no purchase agreement had been formed based on offer and acceptance, and that a valid title for the transfer was therefore lacking.

In practice, this shows that a good leaver scheme is more than just a table with "good," "bad," and a percentage of the share value.

The procedure must also be clear.

Who is required to offer the shares? When does that obligation arise? Does the mechanism work automatically? Who buys the shares? Is a separate offer required? When is the price determined? And how is the final transfer executed?

An arrangement may seem very clear regarding the price, but can still lead to a legal dispute if the process surrounding the offer and transfer is not properly aligned.

A good leaver does not automatically receive a good price

A second ruling by the Amsterdam District Court highlights another risk. In a judgment dated January 18, 2023, ECLI:NL:RBAMS:2023:867, the case concerned a startup shareholder whose employment relationship with a group company had been terminated.

In the termination letter, the shareholder was explicitly designated as a good leaver.

Nevertheless, a dispute arose regarding the transfer of their shares, and specifically the price.

The shareholders' agreement stipulated that a good leaver had to offer their shares at 100% of a value calculated based on five times the EBIT of the last twelve months.

At first glance, that sounds favorable. After all, the founder was a good leaver and was entitled to 100% of the contractually determined value.

But then the crucial question arises: 100% of what?

The parties disagreed, among other things, on which company's EBIT should be used and the period over which that EBIT should be calculated.

The court examined the text and the context of the shareholders' agreement. It concluded that the EBIT of the specific company was decisive, not that of another group company or the group as a whole.

The reference date was also linked to the agreements. Because the shares had to be offered immediately after the end of the collaboration, the valuation was tied to the moment that collaboration ended.

The company had a negative EBIT during the relevant twelve months. Based on the agreed valuation method, the shares therefore had no value. The purchase price ultimately amounted to a symbolic sum of €1.

That was particularly painful because the shareholder had paid €28,000 for their shares.

The court acknowledged that the outcome was unsatisfactory for the departing shareholder, but that did not mean the agreements made could be set aside.

For founders, this is perhaps one of the most important lessons from leaver arrangements: being a good leaver says something about the category your departure falls into, but not necessarily how much money you will actually receive.

The valuation provision ultimately determines the economic outcome.

Share valuation deserves at least as much attention as the leaver definition

During negotiations for a shareholders' agreement, a lot of focus is placed on when someone qualifies as a bad leaver. This is logical, as the term sounds severe and the discount can be substantial.

However, a good leaver arrangement with an unfavorable or unclear valuation formula can ultimately be just as financially significant.

For startups and scale-ups, multiple components must therefore be viewed in conjunction.

If the price is linked to a financial metric, it must be clear, for example, which company that metric refers to. In a group with various entities, it can make a huge financial difference whether the focus is on a single operating subsidiary, a holding company, or the group as a whole.

The same applies to the reference date.

The value of a startup can change significantly in a short period. The chosen reference date can therefore have a major impact on the purchase price. A valuation arrangement without a clear reference date invites debate.

It is also wise not to simply assume that a good leaver will always receive at least their original investment. If parties want that, the pricing arrangement must reflect it. A right to market value, a specific formula, or a percentage of a certain value is different from a guarantee that the original investment will be repaid.

When is someone a bad leaver?

Precisely because a bad leaver is usually worse off financially, a bad leaver provision must be carefully defined.

A relatively objective starting point can be termination for urgent cause. The reasoning behind this is understandable: when a departure is the result of serious misconduct by the person involved, it can be agreed that this also has consequences for their share position.

But even with such a reference, precision is important.

A general reference to all possible urgent causes can turn out broader than the parties intended when concluding the shareholders' agreement. Parties can therefore specify more precisely which behaviors should actually lead to bad leaver status.

Other formulations also require attention.

A criterion such as "insufficient support within the organization" sounds practical, for example, but is much more subjective. One shareholder might feel that a firm management style means support is lacking, while another might see the same situation as a normal internal conflict.

For a founder who may have to relinquish their shares at nominal value or with a large discount, the difference between a clear objective trigger and an open standard is significant.

Be careful with broad terms like mismanagement and breach of contract

Even terms that sound legally robust are not always automatically suitable as grounds for bad leaver status.

One example is "mismanagement." This term suggests serious wrongdoing, but in a concrete arrangement, it can turn out broader than a founder expects. A violation of internal decision-making rules, for example, could already give rise to a discussion about whether the chosen definition has been met.

The same applies to any breach of an employment, management, or shareholders' agreement.

When every breach immediately leads to bad leaver status, a relatively minor contractual error can have massive financial consequences. A more nuanced arrangement can therefore distinguish between a standard breach and a material breach of specifically defined obligations.

Consider, for example, obligations regarding confidentiality, non-compete, or non-solicitation clauses.

It may also be relevant whether a breach can still be remedied. If a cure is possible, an arrangement can provide for a period during which the individual involved can first correct the breach before the most severe leaver consequences take effect.

Furthermore, it is worth considering whether the same behavior is already penalized through another contractual sanction. If a breach is subject to a contractual penalty and that same breach also automatically leads to a significant discount on shares, the financial consequences can compound.

It is precisely these types of situations that must be brought to light during negotiations.

What happens if a founder becomes ill, passes away, or if there is a change of control?

Not every departure from a company is the result of a conflict.

A good leaver arrangement therefore also accounts for special situations, such as long-term disability, death, or a change of control within a founder's personal holding company.

Long-term disability, for instance, does not have to be treated the same as serious misconduct. A leaver arrangement can specifically stipulate that disability after a certain period leads to a good leaver situation, resulting in a different price than that of a bad leaver.

The wording also deserves attention in the event of a change of control of a personal holding company. Especially when such a change is in principle a leaver trigger, it must be clear how, for example, the death of the underlying shareholder is handled.

These are not details to be left for later. Once one of these situations actually arises, the financial stakes are often too high to easily reach new agreements.

Invoking a leaver clause late does not automatically mean it expires

Moreover, a founder cannot simply assume that an obligation to offer shares has disappeared just because the other shareholders have remained silent for a long time.

This was also a factor in the 2023 Amsterdam proceedings.

The shareholder's employment relationship ended in 2018. He was requested to offer his shares in February 2019. After that, there was a long period of silence, followed by the other shareholder demanding performance again in December 2021.

The departing shareholder argued that the leaver arrangement could no longer be invoked due to the passage of time.

The court did not agree. The mere passage of time was insufficient to assume that the other party could no longer exercise its rights. The provisions parties had agreed upon in their shareholders' agreement also played a role in this.

For a departing founder, this means it is risky to automatically conclude from silence that their share position will remain permanently unaffected.

Conversely, it is naturally much more practical for the company if a leaver process is handled quickly and clearly. Years of uncertainty regarding who must transfer shares and at what price is exactly what a well-drafted arrangement should prevent.

The clearer the arrangement, the less room there is for debate

Leaver provisions are typically included in commercial shareholder agreements. The written wording of these agreements can therefore carry significant weight in the event of a future dispute.

This makes careful drafting of contracts especially important.

When a valuation provision states that the EBIT of "the Company" must be used, it is risky to assume later that the results of the entire group were actually intended. And when it is agreed that shares must be offered immediately upon departure, this can have consequences for the valuation reference date.

This is particularly relevant for startups, as the situation at the time of signing the agreement is often completely different from the situation at the time of departure.

On day one, the company may be worth almost nothing. A few years later, external capital may have been raised, an international group may have been formed, or the company may be in financial distress.

A term that seems innocent at the time of signing can suddenly make a difference of hundreds of thousands of euros.

What should you include in a good leaver and bad leaver arrangement?

A good leaver arrangement should not only answer the question of who is leaving on "good" or "bad" terms. It is wise for founders, investors, and the company to walk through the entire mechanism in advance:

• Who is covered by the arrangement? Specify whether the arrangement applies to the founder themselves, their personal holding company, employees, managers, and other participants.
• When does a leaver situation arise? Clarify which event triggers the arrangement and at what point in time that occurs.
• What categories exist? Define good leaver, bad leaver, and any other categories such as early leaver as concretely as possible.
• What does each category receive for their shares? State whether this involves market value, nominal value, a percentage thereof, or a specific valuation formula.
• How is the value calculated? If a financial metric is used, define which entity, which figures, and which calculation method are decisive.
• Which reference date applies? Specify the moment at which the value of the shares is determined.
• How do the offer and transfer process work? Clarify whether the mechanism is automatic, who is required to make an offer, who is eligible to purchase, and what steps and deadlines apply.
• How are special situations handled? Consider death, disability, a change of control, and material breaches that may still be curable.
• Is the arrangement actually enforceable? Prevent the founder in question from using their position as a director or shareholder to block the termination or share transfer.

These topics are interconnected. A perfect definition of a bad leaver is of little use if it remains unclear how the purchase price is calculated. Similarly, a watertight valuation formula will not prevent disputes if it is unclear which events trigger the leaver provision.

Good leaver and bad leaver clauses in startups: think beyond just the resignation

At Startup-Recht, we view leaver arrangements primarily as part of a broader question: how do you want ownership within the startup to evolve when the founder team changes?

This is important because the departure of a founder is almost never just an employment or management issue. It also affects the cap table, the economic interests of the parties involved, and the future collaboration between the remaining shareholders.

A good arrangement must therefore balance two interests.

The company and the remaining shareholders want to prevent a large block of shares from remaining with a departed founder for a long time while the rest of the team continues to build the business. At the same time, the departing founder has an interest in predictable and proportionate consequences, especially when they have contributed to the company's value for years.

Good leaver and bad leaver provisions are the tools parties use to establish that balance in advance.

This is precisely why "we'll just use a standard leaver clause" is usually not a good starting point. The relevant questions vary per company, founder team, and participation structure.

The most important lesson: the label is just the beginning

A founder who is a good leaver does not automatically receive an attractive price. A founder who leaves early is not automatically a bad leaver. And someone with a leaver obligation is not automatically required to transfer their shares in every conceivable way.

The qualification, the obligation to offer, the valuation, the reference date, and the transfer mechanism are separate components that must work together.

Rulings from the Amsterdam District Court clearly demonstrate how significant the consequences can be. In one case, the distinction between a bad leaver and an early leaver made an immediate difference to the discount on certificates. In another case, a shareholder left as a good leaver, but the agreed-upon valuation formula still resulted in a share price of just €1.

For founders and investors, the most important conclusion is therefore simple: discuss the leaver arrangement before someone leaves, not once a conflict has already arisen.

A few lines in a shareholders' agreement can ultimately determine whether a departing founder sells their shares at market value, is forced to transfer them at a steep discount, or sees their entire investment virtually disappear. This makes a well-crafted good leaver and bad leaver arrangement not just a legal detail, but an essential part of the ownership agreements for every startup.

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