Settlement agreement for a founder leaving with shares

A founder leaves in three capacities, as an employee, as a director and as a shareholder, and a settlement that deals with the first two and leaves the third open has not ended the relationship. The agreement has to settle the employment with the claims waived, resign the founder from the board, and either apply the leaver provisions in the shareholders' agreement and the articles or record a separate deal on the shares, with the price, the tax and the shareholder claims dealt with, the intellectual property and the accounts confirmed as the company's, and the founder's covenants and future relationship with the business settled. I draft the agreement for the employer for a fixed fee of £795, delivered in three working days, with a note on the conversation; a version including negotiation with the employee's adviser is £995.

Who this is for

Companies in England and Wales parting with a founder who holds shares, whether by mutual agreement, after a disagreement among the founders or at an investor's instance, and the remaining founders who want the departure complete.

What matters in a founder's settlement agreement

The three capacities a founder leaves in

The employment ends under the settlement agreement with the claims waived in the form section 203 of the Employment Rights Act 1996 and section 147 of the Equality Act 2010 require and independent advice certified; the directorship ends by a resignation contained in the agreement with the Companies House filing and a power of attorney if the founder will not sign; and the shareholding is dealt with under the shareholders' agreement and the articles, or by a separate agreement the settlement records, with the transfer executed and registered; the agreement should list each capacity and the document that ends it, because the one that is missed is the one the founder is still in.

The shares, the leaver category and the price

Where the shareholders' agreement and the articles contain leaver provisions, the departure triggers them, and the real negotiation is usually the leaver category (good or bad, with the price that follows) and the treatment of unvested shares; the settlement can agree the category, the valuation (an accountant's determination, a formula, or an agreed figure), payment by instalments where the company or the remaining founders cannot pay at once, and the mechanics (a transfer to the other shareholders, or a buy-back by the company approved under section 694 of the Companies Act 2006 and funded from distributable profits under section 690), with the compulsory transfer provisions in the articles under section 33 of that Act making the transfer effective if the founder changes their mind; both sides take advice from their accountants on the tax (the restricted securities provisions of the Income Tax (Earnings and Pensions) Act 2003, and capital gains tax on the disposal).

The shareholder claims a settlement cannot waive the usual way

A founder who is a shareholder may have claims as a shareholder (a petition for unfair prejudice under section 994 of the Companies Act 2006, claims under the shareholders' agreement, derivative claims), which are not employment claims and are not waived by the statutory settlement mechanism; the agreement should contain a separate contractual release of all claims the founder has as a shareholder and against the other shareholders and directors, mutual releases where the other founders could have claims against the departing one, and a confirmation that the founder has no interest in the company other than as recorded; a settlement agreement in employment form alone leaves the shareholder claims standing.

Intellectual property, accounts and the business the founder built

The founder may have created the product, registered the domain, opened the accounts and holds the credentials, and the agreement should contain a confirmatory assignment of all intellectual property the founder has in the business under section 90 of the Copyright, Designs and Patents Act 1988 (whether or not an earlier assignment exists), the transfer of domains, social media and platform accounts to the company's control, the handover of credentials and documentation, the founder's confirmation that they hold no other rights, and a licence of the founder's name and image for a transition period where the brand uses them; a company that lets its founder leave without the confirmatory assignment will be asked for it by the next investor.

The board, guarantees, loans and the company's exposure

Resignation from the board and all offices goes in the agreement, together with the position on personal guarantees the founder has given for borrowing or leases (released, or indemnified until release), loans in either direction between founder and company (repaid, or set off against the share price, with any approval section 197 of the Companies Act 2006 required at the time recorded), run-off directors' and officers' cover and the company's indemnity to the extent section 232 of the Act allows, and a check that any payment for loss of office sits within the section 220 exception or carries shareholder approval under section 217; a founder's exit is also the moment to update the register of persons with significant control.

The announcement, the covenants and the founder's future

Staff, customers and investors each need an announcement, which the agreement attaches, alongside confidentiality and mutual non-derogatory terms within the limits the law sets (section 43J of the Employment Rights Act 1996, under which no term can stop a protected disclosure and the Employment Rights Act 2025 limits on non-disclosure terms about harassment and discrimination, effective on a timetable the regulations set), restate the covenants the founder gave as an employee and, more usefully, as a shareholder, and say what the founder may do next: whether they may compete after the restricted period, whether they keep an advisory role or a consultancy for a transition, and how the company will describe their departure; for tax, the payments fall under sections 401 to 403 of the Income Tax (Earnings and Pensions) Act 2003, the notice element under section 402B, and the adviser's fees under section 413A.

What it costs

Settlement agreement, £795. Drafted for your situation, with a note on how to have the conversation. Three working days.

Settlement agreement including reasonable negotiation with the employee's adviser, £995. The agreement in three working days. The negotiation then runs until the agreement is signed or it becomes clear it will not settle. Reasonable negotiation means what, in my experience, amounts to the standard back and forth on a settlement agreement. If the employee or their adviser is being unreasonable, for example by conducting themselves unprofessionally or requiring a substantial rewrite that needs material further legal advice to you, I will flag it and we will discuss how best to proceed, which may involve further fixed-fee work. That would be unusual.

Buying online forms the engagement on payment. The scope is what the settlement agreements for employers page describes, you accept the Terms of Service at checkout, and I email you within four working hours to get started. If you would rather ask something first, email me.

What you get

• A bespoke settlement agreement drafted for the exit you are dealing with
• Proper waiver of the relevant statutory claims, so the agreement does what you are paying for
• Advice on the tax treatment, including the £30,000 exemption and what falls outside it
• Confidentiality, non-derogatory statements and an agreed reference
• Reaffirmation or replacement of restrictive covenants, which is often the real value
• A short note on how to open the conversation and keep it without prejudice or protected
• One round of amendments after the employee's adviser responds

What is not included

• Advising the employee, which their own adviser must do independently for the agreement to be valid
• Tribunal representation if the matter does not settle
• Payroll processing of the settlement sums
• Handling the settlement payment, since I do not hold client money

Questions I am often asked

Our co-founder is leaving. Does the settlement agreement deal with his shares?

It must, either by applying the leaver provisions with the category agreed or by recording a separate deal, with the transfer executed and the shareholder claims released separately. An employment settlement alone leaves him a shareholder with claims.

Can the company buy back the founder's shares?

With shareholder approval and distributable profits, under the Companies Act's buy-back rules. Otherwise the remaining founders buy, with instalments where the price cannot be paid at once. The accountants advise on the tax.

The founder wrote our product. Do we own it?

The settlement should contain a confirmatory assignment regardless of what earlier documents say, with the domains, accounts and credentials transferred. The next investor will ask for it.

Related guidance and services

• Settlement agreements for employers, £795, the service this page describes
• Employment contracts and handbooks, £595
• Shareholders agreement, £995
• Settlement agreement for a director leaving the board
• Shareholders agreement with vesting and good and bad leaver terms

This page is general guidance for businesses in England and Wales, not advice on your own circumstances. Last reviewed: October 2026. Email geoffrey@caesar.co.uk.