Leaver Provisions (Good Leaver and Bad Leaver)

Leaver provisions determine what happens to the shares of a founder or employee shareholder who leaves the company. Depending on the reason for departure, a distinction is made between “good leavers” and “bad leavers”, and shares are bought back at different prices accordingly.

Good and Bad Leavers

• Bad leaver: In practice, people dismissed by the company for just cause, who breach their non-compete or confidentiality obligations, commit an offence against the company, or leave voluntarily before a set period.
• Good leaver: People leaving due to death, serious illness, disability, retirement or termination by the company without cause; in some agreements, any departure not falling within the bad leaver definition is a good leaver event.

Clear and measurable definitions reduce disputes.

Price and Scope

• Good leaver: Unvested shares are usually bought back at par value; vested shares stay with the person or are bought at market value.
• Bad leaver: Unvested shares are bought back at par value, and some or all vested shares at a price below market value.

How market value is determined (latest funding round valuation, independent valuation) should be written into the agreement.

Application under Turkish Law

Leaver provisions are set up in the shareholders’ agreement or the founders’ agreement as a call option granted to other shareholders, and operate together with vesting. For enforceability, a power of attorney is obtained from the departing person in advance and a contractual penalty is provided.

There are two limits to watch. First, buying vested shares at a price far below their real value may amount to an excessive sanction, and for persons who are not merchants, a court may reduce an excessive contractual penalty. Second, if the departing person is also an employee, what happens to the shares should be assessed together with the protective rules of employment law; see Employee Stock Option Plan.