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

Author: Prajakt Raut

Prajakt Raut is the founder of Applyifi.com, and author of the book for startups - ‘Starting Up & Fund Raising’ Prajakt personal goal in life is to encourage and assist a 100,000 people to become entrepreneurs. _____________ Prajakt is the founder of Applyifi - an online platform that provides startups a 36-point scorecard and assessment report on the venture's investment readiness [www.applyifi.com], and helps them improve their odds of getting funded. Prajakt is also the founding partner of The Growth Labs, a platform where growth-stage companies get sharp, incisive advice from senior professionals and experienced entrepreneurs. [www.thegrowthlabs.in] Before starting Applyifi, Prajakt was the head of operations at IAN, founding member of a leading incubator, and the Asia-Director for TiE (2004 - 2007). Previously Prajakt had co-founded Orange Cross, a healthcare services company, and was part of the founding team member of Idealake Technologies. While in college Prajakt had founded a printing business and has spent over 10 years working in leading advertising agencies. Prajakt’s book, ‘Starting Up & Fund Raising’, helps startups understand an investor’s perspective, and helps them improve their odds of getting funded. The book also helps entrepreneurs understand the building blocks of a business.

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