FREQUENTLY ASKED QUESTIONS/What happens when an officer leaves?/


What happens when a shareholder leaves?

Usually, shareholders' agreements include “good leaver” or “bad leaver” provisions in order to sanction, by an immediate partial restitution of shares, an executive who no longer fulfills his role.

It's not a great practice because most of the time these provisions lead the partners to discuss the causes of the departure, when the only thing that should matter is that the shareholder who is leaving can do so and let a new shareholder enter the share capital, in order to increase the company's value.

This is why we propose a very simple clause in case of departure. The rationale is as follows: the acquisition of capital is correlated with time spent in the company (vesting compliant with French law).

Therefore, upon the decision of the other partners in a General meeting, the partner and manager who wishes to leave or who is invited to leave, lose his position as manager and will return his shares according to a simple timetable:

  • Departure during the first year of activity: the manager does not keep any capital share. They are bought back at nominal value.
  • Departure during the second year of business: the manager retains 25% of the shares, the remainder is bought back at nominal value, then + 2% per month spent in the company.
  • From the 4th year onwards, the shareholder will be able to keep all the shares held on the date of his departure.

Why set the share buyback at nominal value in case of departure? Above all, it's important to protect the growth of the company and encourage the founding team to stay as long as possible. Future fundraising should not influence a shareholder's decision to stay or to leave. It is the company's project and the founders that founded the company, not individuals. So if one is leaving, it should be because the team no longer works. The shareholder leaving is thus refunded for what he originally brought i.e, the value of the shares at the company's formation and the portion of the shareholder's current account.

Obviously, if the shareholder is leaving after behaving with malicious intent, he or she will be required to return 100% of the company's shares he/she owned.

Read more:

What you need to know about General Meetings

The violation of your shareholders' agreement and its consequences

The number of shareholders in your company

Your share capital : how to set the amount ?

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