This post uses hypothetical scenarios for illustrative purposes only. It does not describe any actual client, transaction, or representation, and is not legal advice.
A common early-stage pattern looks like this. A handful of people start a company. Everyone gets founder stock, everyone signs a restricted stock purchase agreement with four-year vesting and a one-year cliff, everyone files an 83(b) election, and everyone takes a board seat. Months in, before the first anniversary, one of them stops showing up. Maybe the day job won out, maybe the relationship soured, maybe there was never a fit. The remaining founders keep building, and one morning they realize the cap table still shows a double-digit stake and a board seat belonging to someone who is no longer part of the company.
The instinct is to treat this as a personal problem. It is a documents problem, and the documents were built for this moment. The restricted stock purchase agreement, the bylaws, and the corporate statute together give the company everything it needs to close the chapter. What they do not give the company is a release, a clean handoff, or a former co-founder who speaks well of the business. That is what the negotiated package buys, and it is why the two tracks — a voluntary deal and a unilateral fallback — get drafted together, before anyone picks up the phone.
The cliff is doing the work
Founder vesting exists for this scenario, and the case for it is easiest to see when a founder leaves early. Under a standard founder restricted stock purchase agreement, the founder buys all of his shares on day one at a nominal price, and the company holds a repurchase option over the unvested portion. The option is triggered when the founder’s continuous service ends, for any reason, and it lets the company buy the unvested shares back at the original purchase price. The one-year cliff means that on the day before the first anniversary, zero shares have vested. Every share is subject to repurchase, at cost, and the founder’s economic position after repurchase is nothing.
That is a stark result, and it is the intended one. It is also why timing matters. The company’s leverage is at its highest before the cliff and drops the day after it, when a quarter of the shares vest and become the departing founder’s property free of the option. Boards that let the cliff pass out of politeness or inertia have converted a clean exit into a permanent minority stockholder. Read the agreement early, note the cliff date, and note the window the agreement gives the company to exercise the repurchase option after service ends — many forms use ninety days — because an unexercised option lapses.
Two drafting details in the standard form deserve a close read. First, the definition of continuous service. Most forms define it to include service as an employee, a director, or a consultant. A founder who resigns as an officer but stays on the board, or who steps off the board but signs an advisor agreement, may still be in continuous service under the original agreement, which means the original vesting schedule keeps running. If the plan is a smaller advisor stake, the founder agreement has to be amended, not just supplemented. Second, the exercise mechanics. The form typically requires written notice of exercise within the window and payment by check or cancellation of indebtedness, and it has the founder sign a stock power in blank so the company can complete the repurchase without a second signature. If those pieces are missing, the fallback is weaker than the founders think.
The board seat comes off by written consent
A founder who has stopped working is still a director until he resigns or is removed, still has to be noticed for meetings, and still owes and is owed fiduciary duties. For a Delaware corporation, Section 141(k) of the Delaware General Corporation Law lets holders of a majority of the shares entitled to vote remove any director, with or without cause, unless the board is classified or there is cumulative voting. Section 228 lets those holders act by written consent without a meeting, with prompt notice to the stockholders who did not consent. If the other founders hold a majority of the outstanding stock, the usual early-stage picture, they can sign a consent removing the director on a Tuesday afternoon.
The Court of Chancery has been protective of that right. In Frechter v. Zier (Del. Ch. 2017), a bylaw that required a supermajority vote to remove directors was held invalid because Section 141(k) gives the power to a simple majority. In In re VAALCO Energy (Del. Ch. 2015), charter and bylaw provisions that permitted removal only for cause were held invalid for a company without a classified board. For a private company, the removal right is hard to contract away, but exercising it still has to follow the paperwork: check the bylaws for notice mechanics, check any voting agreement for a founder board designation right that would let the departing founder redesignate the seat, and check whether the certificate of incorporation classifies the board. The vacancy created by removal is filled under Section 223 by the remaining directors, or by the stockholders in the same consent.
Florida corporations get to the same place under Chapter 607. Section 607.0808 permits shareholders to remove a director with or without cause unless the articles provide otherwise, and Section 607.0704 permits shareholder action by written consent signed by holders of the minimum votes that would be needed at a meeting, with notice to the non-consenting shareholders afterward. A Florida LLC is a different animal: manager removal is governed by the operating agreement first and the default rules of Chapter 605 second, and the operating agreement often says something the founders have forgotten. In every case, the departing founder should also resign, or be removed from, any officer positions, and the resignation letter should cover the board, officer roles, and any committee or subsidiary seats in one document.
What the voluntary package looks like
The unilateral route gets the company the shares back and the seat back, and nothing else. It does not deliver a release of claims, a non-disparagement covenant, a cooperation covenant for the next financing, or a reaffirmation of the IP assignment. And it leaves a former co-founder with zero equity and a story to tell. The negotiated package exists to trade a small amount of equity for those things.
The package usually has three parts. First, a resignation letter covering every role, effective on signing. Second, an amended and restated stock purchase agreement under which the departing founder forfeits or sells back the bulk of his unvested shares at the original price and keeps a much smaller number, sometimes with vesting credited for time already served, sometimes with a fresh schedule tied to advisory service. The same document carries the release, the non-disparagement covenant, the confirmation that all inventions and work product belong to the company, and the return of company property. Third, an advisor agreement that defines the go-forward relationship: what the former founder will actually do, how much time he will spend, that he has no authority to bind the company, that confidentiality and IP assignment continue, and that the arrangement is terminable at will. The advisor agreement checklist that applies to any outside advisor applies here too, with the added care that the advisor used to be an insider.
How much equity the package leaves behind is a business judgment. The reference point is what the departing founder would have received for the time actually served if the schedule had been designed for an advisor from the start, and advisor grants are typically a fraction of a percent to low single digits. The remaining founders should be able to explain the number to the next investor in a sentence.
The 83(b) question
Founders who bought their shares at grant and filed a timely election already paid tax on the spread at grant, which was zero if they paid fair market value. The election, and why the thirty-day deadline is unforgiving, is covered elsewhere on this site. Two points matter here. If unvested shares are repurchased at the original price, the departing founder generally recognizes no gain and no meaningful loss; the regulations limit any loss on a forfeiture of Section 83(b) property to the excess of the amount paid over the amount received, and if those numbers match, that is zero. And the retained shares do not ordinarily need a new election. Amending the vesting terms of shares that were transferred at the outset and remain outstanding is not a new transfer of property. What does start a new thirty-day clock is a new issuance, so if the advisor equity is a fresh grant of restricted stock rather than a retained slice of the original shares, that grant needs its own election. Where the drafting is ambiguous, a protective election on the retained shares costs a stamp.
Sequence it before the conversation
The order of operations is where these matters go well or badly. Draft the full voluntary package first, and draft the fallback consents at the same time: the stockholder consent removing the director, the board consent, adopted by the disinterested directors, exercising the repurchase option and appointing any replacement, and the notice of exercise. Then have the conversation, present the package as a reasonable and complete offer, and set a response date. If the founder signs, the fallback never leaves the drawer. If he declines, the consents get signed and the repurchase notice goes out within the window, and the company moves on. What the company should not do is open an extended negotiation over the advisor stake with the cliff approaching, or let the founder’s silence run the clock.
Housekeeping travels with the package: update the stock ledger and cap table the day the repurchase closes, and if a financing is on the horizon, expect investor counsel to ask for every one of these documents in diligence.
The one-year cliff was drafted for the founder who leaves in month eight. The repurchase option, the removal statute, and the written consent were drafted for the founder who will not sign. Used together, and in the right order, they let a company end a founding relationship without ending up in a fight about it. Section 141 and the rest of the Delaware statute are on the Delaware Code website for the removal and vacancy provisions in full.
If you are a founder or a board working through a co-founder’s departure before the cliff, feel free to reach out to our firm manager, Magda, at Magda@montague.law, or fill out our contact form. Mention you read this post.
