A founder leaving the company is often emotional, even when everyone is being friendly about it. There is a strong temptation to agree everything on a phone call and deal with the paperwork later, but that rarely works well, because a founder usually holds several separate positions in the company and each one ends in a different way.
Employment ends under the employment contract and labour law, and a board seat ends under CAMA and the articles. Shares are dealt with under the vesting and leaver terms, and any loan is dealt with under the loan agreement. I prefer to bring all of these into one settlement, so that both sides can see the complete result before they sign.
Find the departure terms that apply
The first step is to read the cofounder agreement and the articles together with any later financing documents, since investors often change vesting and leaver terms during a round. From those documents, identify the event that triggers the leaver provisions and the date the calculation uses. Some agreements use the date notice was given and others use the last working day, and the difference can amount to several months of vesting.
The leaver categories come next. Resignation, an agreed departure, death or incapacity, and misconduct are usually treated differently, and the classification has to follow what actually happened and the evidence available. A disagreement about strategy is not misconduct, however frustrated the other founders may feel.
If the classification is disputed, the company should preserve the evidence and follow the decision process in the agreement, including any rules on conflicts of interest, and it should give whatever notice and opportunity to correct a breach the agreement promises. Where the process or the price consequence looks open to challenge, it is wise to take advice before relying on a bad leaver label to buy shares at a discount.
Work out what happens to each block of shares
Calculate the vested and unvested shares at the contractual date, including any rounding, and apply the leaver terms to each portion. Some agreements also give the company or the remaining founders a right to buy vested shares at a different price, and the settlement should show both calculations so the departing founder can see how the figures were reached.
Nominal value is the capital amount attached to each share, while market value follows the method set out in the agreement. The valuation date and assumptions should be confirmed, including any discount and the independent valuer process if the parties disagree. Where the method refers to the price paid in the last round, it is worth asking whether the rights attached to the investors' preferred shares, and the time since that round, make it a fair measure for ordinary shares.
Someone also has to buy the shares and have the money to pay for them. A purchase by another founder is a straightforward transfer, documented and stamped, while a purchase by the company is a buyback that must follow CAMA, including its solvency and approval requirements. If the price will be paid in instalments, the departing founder should be given some protection for the unpaid balance, and I explain the vesting schedule behind these figures in how founder vesting works.
End the employment and the board seat properly
Employment entitlements should be calculated separately from the share price. Notice pay, accrued leave, any bonus and redundancy payments where they apply should each have their own figure, so it is clear what every payment covers. Founder loans and approved expenses should be reconciled separately again, because a share sale does not settle a loan unless the agreement says so.
A director can resign by written notice, or the shareholders can remove a director by ordinary resolution under CAMA, which requires special notice and gives the director a right to be heard. Once the director has left the board, the register should be updated and the change filed at CAC.
If the company is short of money, exit payments need particular care, because paying a departing founder ahead of other creditors when the company cannot pay its debts can be challenged later. In that situation the company should take advice and agree a payment timetable it can lawfully meet.
Arrange the handover before access ends
Decide who will take over each of the founder's responsibilities. Administrator and recovery access on every important account should be moved to someone else and company devices collected before the founder's access is removed in an organised way. If a dispute seems likely, routine deletion of the founder's email and files should be suspended.
It is also important to check whether the founder ever signed assignments for the code and other work they created, and to complete any that are missing. I explain what those documents need to cover in making sure the company has the rights to its software.
The bank mandate should be updated, and customers and suppliers should be told who now gives instructions on behalf of the company. Regulators should be told as well where they need to know, and copies of these notices should be kept on file.
Releases from the right people
A personal guarantee the founder gave to a bank or landlord stays in place until that creditor releases it, and the remaining founders cannot release it by agreement among themselves. If one of them promises to cover the guarantee until the creditor's release is obtained, that promise should be recorded as a separate undertaking for a stated period.
The settlement release should list the claims being settled and those that survive, within the legal limits on what can be waived, and it should be read together with the payment schedule so that everyone knows what each payment discharges. If a claim belongs to someone outside the settlement, such as an investor, that person has to give their own release.
Confidentiality and non‑compete terms should be reasonable in scope and length, since a court may refuse to enforce terms that go too far. The settlement should also say which records the founder may keep and how they may use them.
Record the rights that continue
A founder who keeps some shares remains a shareholder, with the voting and information rights attached to those shares and the same transfer restrictions as other shareholders, and the settlement should say so clearly. For the shares that were transferred, the signed transfer and payment evidence should be kept with the updated register.
If the founder has died or lost capacity, the company needs to establish who is legally entitled to act, such as an executor or a court‑appointed representative, and obtain the evidence needed for transmission or purchase of the shares. Probate can take several months, so the timetable should allow for it, and the representative should receive the signed documents together with a schedule of remaining payments and the name of the person handling them for the company.
This article is general information and not legal advice. For guidance on your specific circumstances, speak with us directly.