A bad leaver clause defines the circumstances under which a departing manager or shareholder is required to transfer their shares at a significantly reduced price — typically nominal value or original acquisition cost — as a consequence of leaving in adverse circumstances: resignation without legitimate cause, termination for gross misconduct, or breach of the shareholders' agreement. It contrasts with the good leaver provision, which awards fair market value to those departing for legitimate reasons. In fundraising and LBO structures, bad leaver clauses are a central alignment mechanism between investors and management.

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Example: in a Series B fundraising round of CHF 6.0 million, the CEO holds 5% of the company in sweet equity. The shareholders' agreement provides that any voluntary resignation within 36 months of the investment constitutes a bad leaver event, requiring the CEO to transfer shares at the original issue price of CHF 0.10 — well below the implied market value of CHF 1.20 per share at the time of departure.

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Hectelion advises founders and investors on the drafting and negotiation of bad leaver and good leaver provisions in shareholders' agreements.