Shareholders agreement with vesting and good and bad leaver terms

Vesting and leaver provisions answer the question every founding team avoids: what happens to the shares on a departure. Vesting earns the shares over time so that an early leaver does not keep what they have not yet earned; leaver provisions decide the price for the shares they have, depending on why they left. Both need the articles as well as the agreement to bind the shares, and both have tax consequences the shareholders should know before they sign. I draft the agreement, with a briefing session and a note on how it fits the articles, for a fixed fee of £995, delivered in five working days.

Who this is for

Founders, co-owners and companies with employee shareholders in England and Wales who want the shares tied to continued involvement, and shareholders asked to accept vesting who want to understand what it does.

What matters in vesting and leaver provisions

How vesting works and what unvested shares are worth

Vesting treats a shareholder's shares as earned over a period (commonly a few years), often with a cliff before any vest, after which they vest monthly or quarterly; a shareholder who leaves before the end holds vested shares, which are theirs subject to the leaver provisions, and unvested shares, which the agreement and the articles require them to transfer back to the company or the other shareholders for a nominal sum. The shares are issued at the outset so that the shareholder has the votes and the dividends from day one, and the vesting operates by a compulsory transfer rather than by issuing shares later, which is what makes the articles necessary.

Good leavers, bad leavers and the grey area

A good leaver is usually someone who leaves through death, serious illness, redundancy, retirement at an agreed age, or dismissal other than for cause, and keeps their vested shares at fair value; a bad leaver is usually someone who resigns within a stated period, is dismissed for cause, or breaches the agreement's covenants, and transfers their vested shares at the lower of what they paid and fair value; the grey area (a founder who wants out after years for personal reasons, a dismissal that is later held unfair) should be dealt with expressly, with a middle category or a discretion for the board or the other shareholders exercised on stated grounds, because the categories decide the money and the dispute.

The price for vested shares and the valuation

The agreement should define fair value (an accountant's determination on a stated basis: a going concern, pro rata to the whole, with or without a minority discount), the date at which it is assessed, who instructs the valuer and bears the cost, and the price for bad leavers; it should also say what happens if the parties agree a price without a valuation, and should provide for the price to be revisited if the company is sold within a stated period after the leaver's departure for a materially higher value, which prevents a leaver being bought out cheaply before a sale.

Who buys the shares and how the purchase is funded

The agreement should say who has the right or the obligation to buy a leaver's shares: the company, by a buy-back under section 690 of the Companies Act 2006 out of distributable profits (or, for a private company, under the limited capital route the Act allows), with the shareholder approval section 694 requires; the other shareholders in proportion; or an employee benefit trust; and how the purchase is funded, with payment by instalments where the company cannot pay at once and the leaver's shares held pending payment. A compulsory transfer that nobody can afford to complete is a dispute.

The articles, compulsory transfers and the power of attorney

A shareholders' agreement binds only its signatories, and a shareholder who refuses to transfer cannot be compelled by the agreement alone without litigation; the compulsory transfer provisions (the trigger, the price, the mechanism) must therefore be in the articles, which bind every shareholder under section 33 of the Companies Act 2006, with a power of attorney authorising a director to execute the transfer on a leaver's behalf, and the note on the articles sets out the changes needed, with amended articles quoted separately. Shares transferred under the provisions should carry no votes and no dividends from the trigger date.

Tax, acceleration and the sale of the company

Shares subject to vesting are restricted securities for tax purposes, and the restricted securities election under section 431 of the Income Tax (Earnings and Pensions) Act 2003 should be considered with the accountants within the time limit for employee and director shareholders, because without it the lifting of restrictions can create an income tax charge later; the agreement should also say whether vesting accelerates on a sale of the company, in full or in part, so that leavers' shares and the buyer's expectations are aligned, and should fit the EMI scheme rules under Schedule 5 where options are involved. Tax advice is the accountants' and runs alongside the drafting.

What it costs

Shareholders agreement, £995. An agreement between the shareholders of a private company, with a note on how it interacts with your articles. Five working days.

Buying online forms the engagement on payment. The scope is what the shareholders agreement 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 briefing session with all shareholders together, to work through the questions people avoid asking each other
• A shareholders agreement drafted for your actual situation rather than a precedent with the names changed
• A note on how the agreement interacts with your articles, and whether the articles need amending to make it work
• A plain English explanation of every material choice, so nobody signs something they have not understood
• One round of amendments
• Signature-ready documents

What is not included

• Acting for individual shareholders separately, because I act for you jointly
• Company valuation
• Tax structuring, which needs your accountant and should run alongside this
• Amended articles of association and IP assignments, which I quote separately
• Filing at Companies House
• Resolving a dispute that has already started

Questions I am often asked

A co-founder left after eighteen months with a three-year vesting schedule. What do they keep?

The shares vested by then, at the price the leaver category sets, and they transfer the unvested shares back for a nominal sum, provided the articles contain the compulsory transfer. Without the articles, the agreement is a claim rather than a mechanism.

Can we make everyone who resigns a bad leaver?

You can define it that way, but a founder who leaves for good reasons after years as a bad leaver at cost is a provision that invites a challenge and a grievance. Most agreements use a middle category or a discretion on stated grounds.

Do we need a tax election for vesting shares?

Employee and director shareholders should consider the restricted securities election with the accountants within the time limit. The agreement records the vesting; the tax treatment is the accountants' to advise on.

Related guidance and services

• Shareholders agreement, £995, the service this page describes
• Contract review, £495
• Employment contracts and handbooks, £595
• Shareholders agreement for a tech startup before seed funding
• Shareholders agreement with employee shareholders

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.