If your cofounder stopped working but still owns equity and you never put a vesting schedule in place, you have three real options, and none of them is a clawback. You can renegotiate the split and get them to sign away part of it. You can buy their shares back with cash, a note, or a slice of a future exit. Or you can leave their stake alone and issue new equity to the people still working, which dilutes everyone including them. Which one fits depends on how much cash you have, whether they'll answer your messages, and how much of that stake they honestly earned before they left.
The rest of this is how to tell which situation you're in, and what each option needs in writing to actually hold.
Can you take equity back from a cofounder who stopped working?
No. Once shares are issued and paid for, they belong to the holder. Absent a vesting schedule, a repurchase right in the stock purchase agreement, or a buy-sell provision in your shareholders' agreement, someone who stops showing up keeps every share. In Delaware and every other state, stock is property. Removing them as an officer, cutting off their email, taking them off the website: none of that touches the certificate.
The forced paths exist and they're bad. Breach of fiduciary duty, fraud in the inducement, breach of a specific written obligation. All of them mean litigation, and cofounder equity litigation runs into six figures and eighteen months while your fundraise sits frozen because no investor will price a company whose cap table is in dispute. If your company is worth less than the legal fees, suing is a way of setting money on fire to prove a point.
What makes this urgent isn't fairness. It's that a non-working founder holding 30, 40, 50 percent is a fundraising problem. Seed investors read a cap table for signal, and a large passive founder stake tells them the people doing the work are under-incentivized and that a governance fight is waiting for them after they wire the money. They will ask you to clean it up before they invest. You'd rather do it on your timeline than theirs.
Why "you should have used vesting" is useless advice now
Every article on this topic ends with "use a four-year schedule with a one-year cliff." True, and irrelevant if the shares are already outstanding. Worse, it leads founders to a second mistake: assuming they can impose vesting retroactively by writing it into a new document. You can't. Adding a forfeiture restriction to shares someone already owns is a transfer of value away from them, and it requires their signature. Every time.
The other fantasy is the punitive share issuance. Issue ten million new shares to yourself, drop their 45 percent to 4 percent, done. Courts unwind this, and they unwind it reliably, because an issuance whose only purpose is to squeeze out a shareholder breaches the duty of loyalty that directors owe all shareholders. Dilution works as a strategy only when the new equity is genuine compensation for genuine work at a defensible price. Which, as it happens, is often exactly what's called for. But the intent shows in the documents, and the documents get read out loud later.
Which situation are you actually in?
The right option depends on the version of disengagement you're dealing with, and there are five common ones. Be honest about which is yours before you pick a move.
They've gone part-time and they admit it. They took a job, they're doing five hours a week, they say things like "I'm still around, just ping me." This is the best case. They know the split no longer matches reality and they're braced for the conversation. Renegotiate.
They've ghosted but there's no bad blood. Two weeks between replies. No hostility, no engagement. Renegotiate, and make it easy: send a specific proposal with numbers, not an invitation to talk.
They're checked out and defensive. The tell is a sentence like "I did the hardest part" or "the idea was mine." They've built a story where their contribution is finished and yours is ongoing maintenance. Renegotiation usually stalls here. Go to buyout, and if they refuse the buyout, reprice going forward.
They genuinely earned most of it and then left. They wrote the first version, brought the first ten customers, worked eighteen unpaid months, then burned out or had a kid. A 40 percent stake for that is not dead weight, it's a paid bill. Your problem isn't their equity, it's that yours is too small for the next four years. Reprice going forward and stop treating them as the villain.
They're still an officer or director and their signature is required. Now the equity is the smaller issue. Getting them off the board and out of the signature chain is the first ask in whatever deal you strike, and it should be in the same document.
Option 1: Renegotiate the split
This is the fastest and cheapest resolution, and it works when the departing founder still has some self-awareness and some goodwill left. You agree on a smaller number, they sign a surrender or cancellation of the difference, and you both move on.
Say you split 50/50 at incorporation twenty months ago and they've been at a full-time job since month seven. Six months of real work out of twenty. A defensible landing spot is somewhere between 10 and 20 percent, and the way to get there is not "what's fair" (an unwinnable argument) but a rough vesting reconstruction: if the intent was always four years, they vested roughly six months of it, so call it 15 percent and round in their favor to close it today. Rounding in their favor is cheap. Litigation is not.
What the agreement has to contain:
- Exact share counts before and after, not percentages. Percentages move; share counts don't.
- The mechanism: outright surrender and cancellation of X shares, or retroactive vesting applied to the whole stake with the earned portion already vested.
- Resignation from the board and from every officer role, effective on signature.
- A full IP assignment covering everything they built, including code on personal machines and any domain, account, or repository in their name.
- Mutual release of claims through the signature date.
- Non-disparagement, and a short agreed line about why they left that you'll both give to investors.
- A note telling them to get their own tax advice. If you restructure their holding as newly issued restricted stock, the IRS gives 30 days from grant to file an 83(b) election, and missing that window is a tax bill they will blame you for.
The document is the deal. A verbal "yeah, 15 percent sounds right" on a Zoom call is worth nothing four months later when they've talked to a friend who told them they were robbed. If you need help getting the terms out of a conversation and into something you'll both sign, Servanda gives that discussion a structure and produces the written agreement at the end of it, which matters more than either of you feeling heard.
Option 2: Buy them out
A buyout is the cleanest outcome and the right one when they want out entirely, or when they refuse to give anything up for free but will sell. Everything after that is price and structure.
Don't let them anchor the price on your last round's per-share preferred price. Common stock held by a departing founder is worth a fraction of that, because it lacks liquidation preference, has no market, and carries no control. Your 409A valuation, if you have one, is the number to reason from. If you don't have one, the price you last sold common at, or a discount of 60 to 80 percent off the preferred price, is a normal starting position.
Structure matters more than price when cash is tight:
- Installments. Fixed dates, 24 to 36 months, with the shares transferred at signing and the obligation secured or unsecured as agreed. Avoid tying payments to milestones. Milestones create a second dispute about whether the milestone happened.
- Acceleration on liquidity. If you get acquired or raise a large round before the note is paid, the balance comes due. Include this. Its absence is the thing that turns a clean buyout into a lawsuit at the exit.
- The partial buyout. They keep 5 percent and sell the rest. Cheaper for you, feels less like a divorce to them, and closes deals that a full buyout won't.
- The exit carve-out. No cash today. They surrender the shares in exchange for a contractual right to a fixed percentage of net proceeds in an acquisition. This gets abused, so cap it, define "net proceeds" tightly, and get a lawyer to draft it.
One more thing to write down: representations that they own the shares free and clear, with no pledges or side promises to anyone. Founders make casual promises to early helpers. You want that surfaced now.
Option 3: Leave their stake and reprice the future
When they won't engage, won't sell, and won't sign anything, you stop trying to fix the past. You compensate the working founders going forward, and their percentage falls as a byproduct of ordinary company activity.
Mechanically: the board approves restricted stock or option grants to the people doing the work, at fair market value, with real four-year vesting and a one-year cliff. You refresh those grants at each financing. Over two rounds and two grant cycles, a 45 percent passive stake becomes something closer to 20, and nobody's rights were violated.
The requirements are strict and not optional:
- A legitimate compensatory purpose. The grants have to reflect actual roles and market comp, and they have to look reasonable to a stranger.
- Board minutes that document the reasoning at the time. Written after the fact, they're worthless.
- An independent valuation for the strike price.
- Notice. Tell the absent founder in writing that grants are being made, to whom, and why. Surprise is what gets you sued, and a shareholder who was told and said nothing for two years has a much weaker case than one who found out at the acquisition.
This path is slower and it leaves you with a shareholder you didn't choose. It's still better than paying a litigator to shout at your former friend.
How do you open the conversation without starting a war?
Lead with the cap table as a business constraint, not with their behavior, and bring a specific number rather than an invitation to negotiate from zero. Grievance openers reliably produce defensiveness, and a defensive cofounder holding 45 percent is the most expensive kind.
What not to say: "You haven't done anything in six months and it isn't fair that you own half of this." Every word of that is true and it will cost you three months.
What works better: "I want to talk about the cap table, because it's coming up in fundraising and I'd rather the two of us decide this than have an investor decide it for us. Right now you hold 4,500,000 shares. I'd like to propose two options, and I've written both up."
Then give them two structured choices, a date by which you'd like an answer, and the documents. Two options make it a decision instead of a defence. Don't do it over text, don't do it in a group chat with a third person watching, and don't reopen the number once they've accepted it, even if you decide later you were generous.
Questions founders ask next
Can we impose vesting retroactively on shares they already own?
Only with their signature. You're asking them to accept a forfeiture restriction on property they already hold, which is a concession, not an administrative fix. Retroactive vesting is a good deal to propose (it lets them keep what they earned and feels less punitive than surrender), but it is a proposal, not a power you have.
What percentage should a founder who left after a year keep?
Reconstruct it as if vesting had existed: roughly a quarter of their original stake for one year of a four-year schedule, then adjust up for unusual early contribution and down if they left before the product existed. A 50 percent founder who worked twelve months lands somewhere around 12 to 18 percent in most negotiated outcomes. Round upward to close fast.
Do we have to tell investors about this?
Yes, and earlier than feels comfortable. Diligence will surface it through the cap table and the stock ledger anyway, and a resolved situation you disclosed reads as competence while an unresolved one you hid reads as a warning. Have a two-sentence version ready: what happened, what you agreed, what they hold now.
What if they simply never respond?
Send the proposal by email and by certified mail to their last known address, keep every delivery receipt, and set a response deadline. Then proceed with Option 3, documenting the board's compensatory rationale carefully, and keep them on the shareholder notice list for everything they're legally entitled to receive. Silence is not consent, but a documented paper trail of attempts is what protects the grants you make.
Should we each get our own lawyer?
For anything involving money changing hands or a release of claims, yes. Your company counsel represents the company, not either of you personally, and a departing founder who signed a surrender without independent advice has an argument later that they were pressured. Their separate lawyer, annoying as it is in the moment, is what makes the signature stick.
