What’s typically done with un vested equity of a cofounder who leaves?

In cases where there is a vesting clause, the undistributed part of the equity of the leaving founder is available for distribution. How it is distributed and to whom depends on what the founder’s agreement (documented) says. In most cases, it will also be (or should be) captured in the Share Holders Agreement (SHA).
The following options are usually considered, and which of these options or combination of options are relevant for your company are dependent on the company’s individual circumstances :
  1. The shares could be kept aside to give to another individual who could come in to replace the leaving founder – usually done when the skill set that the leaving person had is not present in the team and needs to be added through a new person… and the function that the new person will drive is important enough to ensure longevity of the person
  2. The shares could be distributed to the remaining founders
  3. The shares could be distributed to all shareholders in the percentage of their shore-holding
  4. Part of the shares are distributed (in either of the three ways) and some shares are kept in an ESOPs pool
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