Can We Recover a Founder's Shares If They Stop Working for the Company?

Commercial Agreements

Prepared by: Constantinople

A founder ceasing to work for the company does not automatically transfer their shares to the other shareholders. The first questions are how the shares were granted and how the work commitment was documented. Arrangements described as vesting or buyback may exist; however, the full terms of the agreement, company type and mandatory transfer requirements affect the outcome.

Prepare founders' and shareholders' agreements, share transfer documents, job descriptions and records of payments made. Agreements concerning software, trademarks or other assets contributed by the departing person must also be examined. Their management office, employee status and shareholding are distinct relationships. Termination of one does not mean that the others necessarily end on the same date or with the same consequences.

If a buyback clause exists, check who will be the buyer, how the price is calculated, which event triggers the right and when notice must be given. Restrictions on a company's acquisition of its own shares are also reviewed. Agreement between shareholders does not cure every missing formality or approval. Nor is it a sound solution to create a forfeiture of shares, never provided for in the agreement, through a later unilateral management decision.

Prepare the signed founders' and shareholders' agreements, share transfer documents and departure date. Shares, management office and the transfer of intellectual property assets are addressed separately.

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