October 26, 2026
With a standard restricted stock purchase agreement, the company buys back the departing co-founder's unvested shares at the price they paid, typically $0.00001 per share, and the co-founder keeps the vested shares. The repurchase isn't automatic in most agreements: the board has to approve it, give written notice and pay within the window the agreement sets, often 90 days after the departure. The vested shares stay on the cap table as a stockholding with voting and inspection rights, which is why the departure also needs a separation agreement, confirmation that the company owns the IP, and resignations from the board and any officer roles.
Key takeaways
Founders typically receive restricted stock under a restricted stock purchase agreement (RSPA) with four-year vesting and a one-year cliff. Legally, a founder owns all the shares from the day they are issued. Vesting works through a repurchase right: when the founder stops providing services, the company may buy back the shares that haven't vested yet at the price the founder paid, which for founder stock bought at par is $0.00001 per share. The shares that have already vested are no longer subject to repurchase and remain the founder's. See Unvested Shares and Vesting Schedule.
The departure date matters. Vesting stops on the date services end, so agree on that date in writing. If the founder stays on as a consultant or advisor, vesting may continue under the RSPA's definition of service, which is rarely what the remaining founders intend. Decide whether continued service should count, and put it in the separation agreement.
Read the RSPA first. Most give the company a set period after the termination date, often 90 days, to exercise the repurchase right by written notice. Some say the repurchase happens automatically unless the company declines. If the company does nothing in the window under an optional repurchase right, the right lapses and the founder keeps the unvested shares outright.
The steps are a board consent approving the repurchase, a written notice to the founder stating the number of shares and the price, payment by check or wire, and an update to the stock ledger or cap table cancelling the shares. Many RSPAs require the founder to hold the shares in escrow or give the company a signed stock power, so the company can complete the repurchase without the founder's cooperation. The repurchased shares become treasury shares or are retired, and either way they are no longer outstanding.
Under a standard US founder RSPA, usually not. The unvested shares are repurchased at cost whether the founder quits, is removed or leaves by mutual agreement, and the vested shares stay. Some agreements add good leaver and bad leaver terms, more common outside the US, that let the company repurchase vested shares at a low price if a founder leaves for cause or breaches a covenant. If yours does, the definition of cause is where the fight will be, so read it closely. If a departure turns into a dispute, a lawyer can help evaluate a demand letter and send a first response, and if it goes further the company retains a litigator. These terms also make it harder for the board, which owes fiduciary duties to every stockholder, to act neutrally when it is deciding whether a fellow founder was a bad leaver. See Fiduciary Duties.
Acceleration, where some unvested shares vest early, is rarely given to founders on a simple departure. It usually applies only on an acquisition, and often only if the founder is also let go. See Single vs Double Trigger.
A founder who leaves after two or three years can walk away with a substantial share of the company. Investors call this dead equity: ownership held by someone who no longer contributes, which reduces what's available to motivate the team. Expect investors to ask about it in diligence.
There are three options. The company or the remaining founders can negotiate a buyback of some or all of the vested shares at fair market value, which needs cash and a willing seller. The company can rely on its right of first refusal on transfers, usually in the founder's RSPA, so that if the departed founder later tries to sell, the company or its designees can buy on the same terms. Or the company can leave the block alone, which is often the right answer for a founder who built something real. A negotiated buyback price is also a data point the company's next 409A valuation will consider. See ROFR.
A departed founder with vested shares is a stockholder like any other. They vote their shares on matters that need stockholder approval, unless a voting agreement says otherwise, and they receive notice when the company acts by less than unanimous written consent. Under Section 220 of the Delaware General Corporation Law they can demand to inspect the company's books and records, including the stock ledger, board minutes and certain financial statements, if they state a proper purpose in a written demand under oath. They lose anything that depended on working at the company, such as access to company systems. If a voting agreement ties a board seat to service, they lose the right to that seat as well.
The separation agreement should include the founder's resignation from the board and from every officer role, a general release of claims in exchange for something of value, a confirmation that all IP the founder created for the company is assigned under their CIIAA, and the return of company devices, credentials and data. Remind the founder of their confidentiality obligations. If the CIIAA or RSPA includes a non-solicit, confirm its scope, keeping in mind that California voids most of them. Agree on how the departure will be announced. Then update the cap table and tell your investors.
Example. Two founders each hold 4,000,000 shares, bought at $0.00001 per share with four-year vesting and a one-year cliff, and the company has a 1,000,000-share option pool. Founder B leaves after 18 months. At the cliff, 1,000,000 shares vested. Over the next six months, one forty-eighth of the shares vested each month, or 4,000,000 × 6 ÷ 48 = 500,000 more. Founder B has 1,500,000 vested shares and 2,500,000 unvested shares.
The board approves the repurchase within the RSPA's window and pays 2,500,000 × $0.00001 = $25.00. Outstanding shares fall from 8,000,000 to 5,500,000.
| Holder | Before (fully diluted) | After (fully diluted) |
|---|---|---|
| Founder A, 4,000,000 shares | 44.4% | 61.5% |
| Founder B, 4,000,000 then 1,500,000 shares | 44.4% | 23.1% |
| Option pool, 1,000,000 shares | 11.1% | 15.4% |
| Total | 9,000,000 shares | 6,500,000 shares |
Founder B, who no longer works at the company, still holds 23.1% of it on a fully diluted basis. That is the number investors will see.
Treat it as a short negotiation with one goal: a signed separation agreement. Investors in your next round will ask for it, so the signed release and IP confirmation matter more than winning the last point.
Who negotiates. The board acts for the company, usually through the remaining founders. If the departing founder is a director, they shouldn't vote on their own separation. Have the terms approved by the directors who aren't involved or, if the board is too small for that, by the disinterested stockholders. Company counsel represents the company, not either founder, so the departing founder should have their own lawyer. See Why Your Startup's Lawyer Is Not Your Lawyer.
Speed and value. Aim to settle in days or a few weeks. A long fight distracts the team and shows up in diligence. Negotiate from a realistic value for the company, often close to the cash invested or the price of your last round, not the valuation you hope to reach.
The package. A typical outcome is that the departing founder keeps their vested shares, the company repurchases the unvested shares under the RSPA, and the company pays something modest for the release. A release is only enforceable if the founder gets something they weren't already owed, so salary, expenses and vested shares don't count. The founder gives a general release, confirms the IP assignment, resigns from the board and every officer role, and returns company devices, credentials and data. Mutual non-disparagement is common. If the company needs more, such as a release of a disputed claim to more equity, it may have to give more, such as a few months of accelerated vesting or a longer window to exercise any stock options the founder holds. Either needs board approval, and changing an option's terms can change its tax treatment, so involve a tax advisor. Don't use a new investor's money to buy out a departing founder without that investor's agreement.
Releases from founders 40 and older. If the founder is an employee aged 40 or older and the company has 20 or more employees, a release of federal age discrimination claims must give them at least 21 days to consider it, or 45 days plus written disclosures if the departure is part of a group layoff or exit program, and 7 days to revoke it after signing. It must also meet the other federal requirements, including advising them in writing to consult a lawyer. State law can add its own rules.
Communication. Keep every email and message professional, because investors, employees and future acquirers may read them. Agree on how the departure will be described, tell your lead investors before the team hears it elsewhere, then tell the team.
Timing. Sign the separation agreement before the RSPA's repurchase window closes, and ideally before you start your next round. If the negotiation stalls, have the board exercise the repurchase right on time anyway.
Then the founder owns every share outright, and the company has no right to take any of it back. The options are a negotiated buyback, where the founder agrees to sell some shares to the company, or a recapitalization, which changes the rights or number of shares across the cap table. A recapitalization aimed at one stockholder needs stockholder approval and raises serious fiduciary duty questions, and the departing founder may challenge it. This is the most expensive version of the problem, and the reason founder stock should always carry vesting from day one.
For more, see RSPA, Stock and Options When You Leave, Founder Equity: How To Split Equity Among Co-founders and CIIAA.
If a co-founder is leaving, contact us before the repurchase window starts running.
