Good Leaver / Bad Leaver
Also called: Leaver Provisions · Leaver Clause
Leaver provisions determine what happens to a departing shareholder’s equity based on the circumstances of their exit. A good leaver typically retains vested shares or is bought out at fair value; a bad leaver may forfeit shares or be bought out at a discount.
In more detail
The classification usually turns on why someone left. Death, long-term illness, and redundancy typically qualify as good leaver events. Resignation within an early period, dismissal for cause, or breach of restrictive covenants typically qualify as bad leaver events.
The financial consequence is the buy-back price. A good leaver might receive fair market value for vested shares, while a bad leaver might receive the lower of cost and market value — a difference that can be very substantial.
Poorly drafted leaver clauses create a large grey zone. Voluntary resignation after several years of genuine contribution is the case most often left ambiguous, and it is exactly the case most likely to be disputed.
What our lawyers check
- How each category is defined, and how much discretion is left to the board
- The valuation basis for each category, and who determines it
- Whether an intermediate category exists for ordinary resignation
- How leaver treatment interacts with the vesting schedule
Contracts where this clause matters
Related terms
This definition is general information about commercial contracting practice, not legal advice. How a clause operates depends on the specific wording of your agreement and the law that governs it. For advice on your contract, have it reviewed by a lawyer.
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