What is Bad Leaver?
Bad Leaver
A Bad Leaver is a founder or employee who leaves a startup under unfavorable conditions, which usually forces them to forfeit unvested and/or vested shares.
Why It Matters for Startups
Governs the legal rights and ownership distribution of the entity; configuring Bad Leaver is critical for managing long-term cap table health and alignment during protecting a startup's equity pool from departed founders who violate agreements.
Detailed Deep Dive
A Bad Leaver is a founder or employee who leaves a startup under unfavorable conditions (such as dismissal for cause, material breach, or joining a direct competitor). Bad leaver clauses typically force the individual to forfeit all unvested shares and sell vested equity back to the company at nominal value.
Frequently Asked Questions
Q:What qualifies someone as a bad leaver?
Dismissal for cause, fraud, breach of shareholder covenants, or voluntarily resigning early to join a direct competitor.
Q:What happens to a bad leaver's shares?
Unvested shares are canceled immediately. Vested shares are typically bought back by the company at the lower of fair market value or nominal cost.
Quick Facts
- CategoryLegal
- Key ApplicationProtecting a startup's equity pool from departed founders who violate agreements
Coverage Trend12 Weeks
Related Startup Terms
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