Good Leaver

The term “good leaver” is used in the context of startup companies and participation agreements to describe scenarios in which a founder, employee or investor leaves the company under favorable or acceptable conditions. The definition of a good leaver has significant implications for the treatment of company shares, options or other forms of compensation when an individual leaves.

Definition and concept:

A good leaver is typically someone who leaves the company for reasons that are considered understandable or unavoidable. The exact definition may vary depending on the agreement, but often includes the following scenarios:

1. retirement at normal age
2. Permanent incapacity for work or death
3. Amicable separation
4. Termination by the company without good cause
5. In some cases: Termination by the employee for specific, defined reasons

Importance for startups and investors:

For startups:
– Enables fair treatment of departing team members
– Helps to retain key employees by offering fair exit conditions
– Creates clarity and reduces potential conflicts when leaving the company

For investors:
– Secures investments through clear regulations for various exit scenarios
– Enables differentiated treatment of key individuals
– Supports the long-term stability of the company

Typical regulations for good leavers:

1. retention of vested shares or options
2. possibility to exercise options over a longer period of time
3. fair valuation and redemption conditions for shares
4. in some cases: Accelerated vesting of shares that have not yet vested
5. retention of certain rights (e.g. information rights) for a transitional period

Comparison with “Bad Leaver”:

In contrast to the good leaver is the term “bad leaver”, which typically describes scenarios in which someone leaves the company under unfavorable conditions (e.g. termination for cause, breach of contract). Bad leavers usually experience less favorable treatment of their shares or options.

Negotiating points:

1. precise definition of the good leaver scenarios
2. treatment of vested and non-vested shares
3. time frame for exercising options after leaving the company
4. valuation methods for the repurchase of shares
5. transitional arrangements and continuing obligations

Legal and practical aspects:

– Careful wording in articles of association, shareholding programs and employment contracts
– Consideration of labor law regulations and possible restrictions
– Tax implications for the treatment of shares and options
– Consistency with other company policies and agreements

Strategic considerations for start-ups:

1. balance between fairness towards departing employees and protection of the company
2. adaptation of the good leaver provisions to different company phases
3. consideration of the effects on corporate culture and employee motivation
4. regular review and updating of the regulations

Best Practices:

1. clear and transparent communication of the good leaver provisions to all parties involved
2. fair and consistent application of the regulations
3. flexibility to take individual circumstances into account
4. involvement of experienced legal advisors in drafting the agreements

Challenges and risks:

1. potential inconsistencies in the interpretation of good leaver scenarios
2. possible legal challenges to the provisions
3. balance between standardization and flexibility in the agreements
4. impact on the attractiveness of the company for potential employees and investors

Market trends and developments:

1. increasing differentiation and detailing of good leaver provisions
2. adaptation to new working models and corporate structures
3. increased consideration of equity components in good leaver scenarios
4. harmonization of good leaver definitions in international startup ecosystems

Conclusion:

Good leaver provisions are an essential part of modern startup agreements and play an important role in designing fair and transparent exit scenarios. They offer protection and clarity for all parties involved and help to minimize potential conflicts and promote a positive corporate culture.

It is crucial for startups to design good leaver arrangements carefully and with foresight to take into account the interests of the company as well as those of employees and investors. A balanced approach can help attract and retain talent while protecting the long-term stability and value of the business.

Investors and founders should view good leaver provisions as a strategic tool that not only provides legal clarity, but also reflects the company’s culture and values. In a dynamic startup environment where changes and transitions are frequent, well-designed good leaver provisions can make a significant contribution to minimizing risk and to the long-term success of the company.