What are good leaver / bad leaver provisions?
Good leaver / bad leaver provisions are the contractual mechanism that determines what happens to a founder’s or key employee’s shares and options when they leave the company, depending on the reason for departure. They appear in shareholders’ agreements and share option plans and operate alongside the vesting schedule: the reason for leaving fixes both which shares are kept and the buy-back price.
Typical definitional items
- Good leaver: death, permanent incapacity, dismissal by the employer without just cause, and retirement.
- Bad leaver: dismissal for just cause, resignation before an agreed period has run, or breach of non-compete or confidentiality obligations.
- Consequence: a good leaver usually keeps vested shares or sells them at fair value; in a bad leaver scenario unvested shares lapse and vested shares are repurchased at nominal or discounted value.
The legal dimension
In most structures the mechanism is built through reverse vesting: shares are transferred up front, and on departure a repurchase right arises in favour of the company or the other shareholders, often drafted as a call option. The main negotiation points are the definitional items and the price formula: fair value or nominal value, the discount rate, when resignation counts as a bad leaver event, and whether an intermediate category sits between the two. The severity of the categories directly shapes the founder’s remaining incentive and the investor’s protection. In option plans the same logic operates through cancellation of options or shortening of the exercise window.
Turkish context
Turkish law has no statutory good leaver / bad leaver regime; the mechanism is built contractually through the shareholders’ agreement with support in the articles of association. A company’s acquisition of its own shares is restricted under the Turkish Commercial Code No. 6102 (as a rule, 10% of the capital), so the repurchase right is usually granted to the other founders or investors, or structured within the buy-back limits. Bad leaver clauses that operate as excessive penalties can be reviewed under good faith principles and judicial reduction of penalty clauses; measured price formulas improve the odds that the clause survives scrutiny.
Do: define each category through concrete events, write the price formula and valuation method up front, and align the mechanism with the vesting schedule. Don’t: treat every resignation as an automatic bad leaver event, or try to claw back vested shares for no consideration without good reason.
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