bad leaver clause

Equity Retention

Departures triggered by employment breaches or early resignations convert founder stock into nominal value purchases or zero consideration transfers. Founders subject to this mechanism lose control over accumulated capital gains and voting rights simultaneously. Operating control shifts immediately to remaining board members while the departing individual retains only statutory rights.

Financial loss concentrates in hours spent without compensation during the initial development phase, turning past labor into an unrecoverable capital contribution.

Departure Trigger

Termination events triggering penal share reductions depend strictly on board definitions rather than objective performance metrics. Disagreements over strategic direction frequently precede a board vote classifying an ordinary exit as a penal departure. Founders holding minority voting blocks lack the structural leverage to contest this classification during executive disputes.

Operating hours logged over previous years convert retroactively into unpaid labor when the board invokes this administrative lever.

Operational Penalty

Vesting schedules function as retention devices that extract ongoing compliance from founders long after the initial capital formation phase concludes. Leaving the operational seat prematurely activates forfeiture rules designed to penalize breach of contract rather than market underperformance. Capital accumulation stops on the exact date of separation, leaving the founder with a fraction of the equity initially promised at incorporation.

Ownership separation from operational duties remains incomplete until the board executes the share clawback provisions defined in the original incorporation documents.