When a Co-Founder Leaves: Vesting, Forfeiture and Buyback
The conversation nobody plans for is the one where a co-founder leaves the startup and both sides discover what the paperwork actually says about their equity. The answer is rarely what either remembers agreeing. It is set by the vesting schedule, the repurchase right, and the price formula written into the stock purchase agreement — usually years earlier, usually unread since.
What happens to a co-founder's equity when they leave?
Vested shares stay with them unless a repurchase right says otherwise. Unvested shares are usually forfeited automatically on the departure date. Whether the company can buy back the vested portion, and at what price, depends entirely on what the stock purchase agreement says.
- Unvested shares typically return to the company on the departure date.
- Vested shares are the departing founder's property unless a buyback right exists.
- The repurchase price is set by the agreement, not negotiated after the fact.
Run the vesting date, not the memory
Almost every dispute here starts with a disagreement about how much had vested. On a four-year schedule with a one-year cliff, a founder leaving at month fourteen has vested a little over 29% of their grant; at month eleven they have vested nothing at all. The difference between those two dates is the entire negotiation, and it is arithmetic rather than opinion. The vesting schedule simulator gives the exact figure for a given start and departure date.
Once the vested number is settled, the second question is what the remaining cap table looks like. Forfeited shares usually return to the company and are effectively re-shared among everyone left, which changes each remaining holder's percentage. The founder dilution calculator is the quickest way to see the post-departure split before anyone commits to a number in writing.
What to fix while everyone still agrees
Reverse vesting, a repurchase right and a stated price formula belong in the documents at incorporation, when they read as boilerplate rather than as an accusation. Retro-fitting them during a departure is expensive and rarely succeeds. Lovie keeps each founder's vested and unvested position current, so the number governing a difficult conversation is already on screen rather than reconstructed under pressure.
The tax treatment of founder shares subject to forfeiture is governed by 26 U.S. Code §83 on property transferred for services.