Your co-founder just told you they're leaving. Before you say anything back, here's what needs to happen in the next 30 days: lock the cap table, assign the IP, settle the equity, then tell everyone else. In that order.
A co-founder departure checklist matters because most founders treat this as a personnel problem and only discover it's a legal one after the cap table is already a mess. Handle it cleanly in month one and it disappears. Handle it loosely and it resurfaces during due diligence, usually the week you're trying to close a round.
Lock the cap table before you say anything else
Freeze any pending option grants and pause new equity conversations until you know exactly what this person is walking away with.
Pull three documents first: the founder agreement, the vesting schedule, and the current cap table. Most startups use a four-year vesting schedule with a one-year cliff, so the first question is simple: did they clear the cliff?
If they left before the cliff, they typically walk with nothing. If they left mid-vest after the cliff, the company usually has the right to repurchase unvested shares at the original purchase price, often somewhere between $0.0001 and $0.001 a share. That single repurchase clause is the reason a clean vesting schedule matters more than almost any other piece of founder-stage paperwork.
Vested shares are a separate question. Many founder agreements give the company a right of first refusal or a buyback option on vested equity, so a departed co-founder doesn't sit on your cap table indefinitely as a non-working shareholder with a board seat's worth of leverage and none of the obligations.
Update your cap table software the same week, not the same quarter. Investors run their own diligence checks, and a stale cap table is one of the fastest ways to stall a term sheet.
Assign the IP before the conversation ends
If your founder agreement already has a blanket IP assignment clause, this step is a formality: confirm in writing that everything they built, code, designs, the customer data model, anything in progress, belongs to the company, not to them personally.
If that clause is missing or vague, this is the moment to fix it, while they're still cooperative and before a severance conversation turns adversarial. A departing co-founder who later claims partial ownership of the product because "nothing was ever formally assigned" is a fight you can prevent entirely with one signature today.
Decide good leaver versus bad leaver terms
Not every departure deserves the same treatment. A founder leaving for a health reason and a founder leaving to join a direct competitor are not the same event, even if the vesting math looks identical on paper.
Define this explicitly:
- Resignation in good standing: standard repurchase terms, standard timeline.
- Termination for cause: repurchase at cost, no negotiation window.
- Departure to a competitor: trigger any non-compete or non-solicit language now, not after they've made calls to your customers.
- Health or personal reasons: consider accelerating a small amount of unvested equity as a goodwill gesture, especially if they were instrumental early on.
Put the answer in writing, even informally, before you finalize any repurchase or severance terms.
Tell your team, investors, and customers, in that order
Your team hears it first, in person if possible, with a short, honest explanation and no speculation about why. Investors hear it next, ideally within 48 hours, directly from you rather than through the grapevine. A co-founder departure that reaches a board member secondhand reads as a governance problem even when it isn't one.
Customers only need to know if the departing founder was customer-facing. When they do need to know, frame it around continuity: what's changing operationally, and, more importantly, what isn't.
The 30-day move
If you do nothing else this month, do this: get the cap table updated, the IP assignment confirmed in writing, and the repurchase terms documented, in that order, within the first two weeks. Everything else, the team conversation, the investor update, the customer messaging, is easier once the legal and financial footing is settled. Founders who reverse this order, leading with the narrative before the paperwork, are the ones who end up renegotiating equity six months later with a lawyer in the room.
Frequently asked questions
What happens to unvested shares when a co-founder leaves?
Unvested shares are typically repurchased by the company at their original purchase price, often a fraction of a cent per share, and effectively return to the pool, increasing everyone else's ownership percentage.
Can a departed co-founder keep their vested equity?
Usually yes, unless the agreement includes a buyback or right of first refusal clause. Many startups negotiate an option to repurchase vested shares specifically to avoid a non-working shareholder holding equity indefinitely.
Do we need a new IP assignment if we already have a founder agreement?
Only if the original agreement's IP clause is vague or missing. A blanket assignment clause covering all work product usually makes a separate document unnecessary, but confirm it in writing at departure regardless.
How fast should investors be told a co-founder is leaving?
Within 48 hours, directly from you. Investors finding out secondhand tends to raise more concern than the departure itself.