Protecting Founders and Safeguarding Control: The Power of Good and Bad Leaver Provisions

For business founders, few situations are more delicate than a shareholder’s unexpected departure. Whether due to resignation, a dispute, or a change in direction, the way those exits are handled can have a lasting impact on ownership, control, and company stability.

In a recent matter, our corporate team helped a founder navigate precisely this challenge. A shareholder who had been granted shares in the company sought to leave the business and, despite never paying for their shares, was pressing for a payout upon exit.

Led by Senior Associate Marco Difato, our team carried out a detailed review of the company’s articles of association and supporting documents. That review revealed a powerful but previously underutilised safeguard: bad leaver provisions that entitled the company to buy back the departing shareholder’s shares at nominal value.

By identifying and correctly applying these provisions, we were able to help the client recover the shares without unnecessary negotiation or cost. The company retained full control and avoided rewarding a shareholder who had not contributed financially or operationally to its success.

This outcome underscores the importance of having well-drafted, well-understood constitutional documents. Too often, good and bad leaver provisions are included in a company’s articles or shareholders’ agreement but are never reviewed or strategically applied when disputes arise. In this case, the mechanism was already in place but had not been recognised by the founder as a viable option until we stepped in.

At its core, a good leaver clause allows a departing shareholder who has acted properly or left under acceptable circumstances (for example, retirement or redundancy) to sell their shares for fair market value. A bad leaver clause, by contrast, applies where a shareholder leaves under unfavourable conditions, breaches their obligations, or fails to meet agreed commitments, often allowing the company to repurchase those shares at cost or nominal value.

These provisions are not about penalising shareholders. They are about protecting founders, investors, and long-term value, ensuring that ownership remains in the hands of those who continue to contribute to the company’s growth and governance.

As Marco explains:

“In many cases, the protections founders need are already written into their articles. The key is knowing when and how to use them. These clauses can make the difference between a clean exit and a costly dispute.”

At Adam Benedict, we regularly advise on shareholder protections, articles of association, and corporate governance frameworks, helping founders and business owners establish clarity from the outset. Our approach combines technical precision with a practical understanding of what businesses need to operate confidently and securely.

Good governance is not about adding layers of complexity; it is about foresight, clarity, and control. Whether advising on new company formations or restructuring existing ownership arrangements, our corporate team ensures that every document serves its purpose, providing certainty and stability when it matters most.