What happens if a cofounder leaves without vesting?

Does the cofounder keep their shares?

Generally, yes. Shares that were validly issued and paid for belong to the shareholder. Without vesting, a buyback right in a shareholder agreement or some other signed term, the company has no right to take them back because the person stopped working.

Start by collecting everything that was signed: the articles, any shareholder or founders agreement, subscription documents, employment or consulting agreements, and emails or messages about the deal. Sometimes there’s more than founders remember.

Can we cancel or dilute their shares?

Not unilaterally. Without a signed term allowing it, the company generally can’t cancel shares without the holder’s agreement. Issuing a large block of new shares to the remaining founders just to shrink the departing founder’s stake can expose the company and directors to an oppression claim under section 248 of Ontario’s Business Corporations Act or section 241 of the CBCA, which let a court remedy conduct that is oppressive or unfairly prejudicial to a shareholder. New shares issued for real reasons, such as an investment or an option pool, are different.

What can we negotiate?

Most departures end in a negotiated agreement. Common terms:

• A buyback. The company or the remaining founders buy some or all of the shares. The price is whatever is agreed, often low for an early-stage company. A company buyback must pass the solvency test in section 34 of the CBCA or sections 30 and 31 of the OBCA.
• A partial keep. The founder keeps a portion that reflects their time, and sells or gives back the rest.
• Converting the stake. Swapping voting shares for non-voting shares, so the founder keeps economics but not control. This needs the right share classes and the holder’s agreement.
• A release. Each side releases claims against the other.

Situation	What usually happens
Vesting in place	Company buys back unvested shares at the agreed price
Shareholder agreement with leaver terms, no vesting	Follow the agreement’s buyback or transfer terms
Nothing signed	Negotiate; the founder keeps the shares if no deal is reached

What about the code they wrote?

This can matter more than the shares. Under section 13 of the Copyright Act, the author generally owns what they create unless it was made by an employee in the course of employment, and assignments must be in writing. A cofounder who wrote code without an IP assignment may still own it. Make a signed, confirmatory IP assignment and moral rights waiver part of any exit deal. Our who owns your code check helps spot gaps.

Do they stay on the board?

Not if they resign. A director’s resignation takes effect when the written resignation is received by the corporation (Ontario) or sent to it (federal), or at a later time it specifies, under section 121(2) of the OBCA or section 108(2) of the CBCA. Get written resignations as director and officer, update the registers, and file a notice of change within 15 days: under section 4 of Ontario’s Corporations Information Act for an Ontario company, or section 113 of the CBCA for a federal one.

What should we do next?

1. Gather the documents and talk to a lawyer before talking terms.
2. Agree the shares, IP, resignations and releases in one written exit agreement.
3. Update the cap table, securities register and significant control register.
4. Put vesting on the remaining founders’ shares, so it doesn’t happen twice. Investors will ask.

Our founder vesting and IP assignment work starts at $920, and a shareholder agreement starts at $1,320. Exit negotiations are quoted before work starts. Fees are in Canadian dollars and exclude HST; government filing fees and other disbursements are charged at cost. See fees.

This guide is general information about Ontario and Canadian law, not legal advice for your situation. If a cofounder is leaving, book a free 15-minute consult.