If you are searching for this answer right now, there is a reasonable chance you are already in a difficult situation. A co-founder has left or is leaving, and you are trying to understand what that means for the equity they were granted when the company was formed.
The honest answer is: it depends entirely on what your co-founder agreement says. And if your agreement does not address this clearly, the answer is probably not what you were hoping for.
The scenario without vesting
If your co-founder was granted equity with no vesting schedule, they own that equity outright from the moment it was granted. When they leave, they take it with them. There is no legal mechanism to reclaim it based on the fact that they departed early or stopped contributing, unless your agreement contains specific provisions that address this.
This is the most painful version of this situation, and it is also the most common one for founding teams who moved quickly and signed whatever agreement felt easiest at the time. A co-founder who owns 30% of your company and leaves after four months still owns 30% of your company. They will be on your cap table when you raise your seed round. Investors will ask about them. You will need to explain the situation and potentially negotiate around it.
There is sometimes a path forward through a negotiated buyback, where the remaining founders offer to repurchase the departed co-founder's shares at a price both parties agree to. This works when the relationship is reasonably intact and the departed founder is willing to cooperate. It does not work when the departure is acrimonious, which is often when you most need it to.
The scenario with vesting
If your co-founder agreement includes a standard vesting schedule, the outcome is much more predictable. Unvested shares return to the company when a founder leaves. Vested shares stay with the departing founder.
The amount they walk away with depends on when they leave relative to their vesting schedule. A co-founder who leaves before the one-year cliff, assuming a standard four-year vesting schedule with a one-year cliff, leaves with no equity at all. A co-founder who leaves after two years of a four-year schedule leaves with 50% of their grant, representing the portion that had already vested.
This is a much cleaner outcome. The equity that returns to the company can be reallocated, used to recruit a replacement, or retired. Your cap table reflects actual ongoing contribution rather than a historical grant that no longer corresponds to anyone doing work.
Termination for cause vs. without cause
Many co-founder agreements distinguish between voluntary departure, termination for cause, and termination without cause. These distinctions matter because they often trigger different outcomes for vested equity.
Termination for cause typically gives the company the right to repurchase even vested shares, sometimes at cost or at a reduced price. This is the most aggressive protection for remaining founders and for the company, and it depends entirely on how clearly the agreement defines what constitutes cause. An agreement that includes a termination for cause provision but does not define cause is very difficult to enforce.
Termination without cause, or a voluntary resignation, typically allows the departing founder to retain their vested shares. The company gets back unvested shares but does not have the right to claw back equity that has already vested.
What happens to their vested shares long-term
Even when a co-founder leaves and retains their vested equity, that equity comes with certain rights depending on the class of shares and what your governing documents say. They may have the right to vote those shares, the right to receive distributions or proceeds in a liquidation event, and potentially the right to participate in future financing rounds.
If the departed co-founder retains a significant stake and the relationship ended badly, this can create ongoing governance friction. Some co-founder agreements include drag-along provisions or other mechanisms to limit a minority shareholder's ability to block transactions. If yours does not, it is worth understanding what rights your former co-founder retains as a continuing shareholder.
If your agreement is silent on any of this
Go back and read your co-founder agreement carefully. Look specifically for a vesting schedule, a section on what happens upon departure, any repurchase rights the company holds, and a definition of termination for cause. If any of these are missing, consult an attorney before taking any action. The path forward depends heavily on the specific language in your documents and the laws of your state.
If no co-founder agreement exists at all, you are in a more complicated situation and legal advice is not optional.
The preventable version of this problem
Everything described above is significantly easier to navigate when the co-founder agreement was drafted properly at the start. A four-year vesting schedule with a one-year cliff, clear definitions of departure scenarios, explicit repurchase rights, and a defined process for what happens to unvested equity covers most situations in a predictable way.
If you are reading this before a co-founder has left, use it as a signal to review your agreement now. The conversation is uncomfortable. It is substantially less uncomfortable than the alternative.
This post is for informational purposes only and does not constitute legal advice. Consult a licensed attorney if you are currently navigating a co-founder departure.