The shareholders' agreement is one of the most underrated documents in the life of a company — and, paradoxically, the one that most determines what will happen the day a sale is on the table. Most founders sign it when they incorporate the company without reading it in detail, put it away in a drawer, and don't look at it again until a buyer or investor comes along. By then, it's too late to fix what was signed badly.
In this article, we explain which clauses a shareholders' agreement should include so that it protects the company when the time comes for an M&A deal, with recommendations from Maria Rodrigo, partner at FILS Legal, a boutique law firm with experience in mid-market deals of up to €100M. At the end, you'll find a checklist to self-assess your current agreement and a downloadable annotated template to review with your legal counsel.
What a shareholders' agreement is and why it matters in M&A
A shareholders' agreement is a private agreement among a company's shareholders or partners that governs their internal relationships: how decisions are made, how share transfers are handled, what happens if new investors come in, how someone exits the project, and how returns are distributed.
It is different from the articles of association: the articles are public and filed with the Commercial Registry, govern the formal aspects of the company, and are binding on third parties. The shareholders' agreement is private, much more flexible, and only binds the parties that sign it.
In the context of M&A, a good shareholders' agreement:
- Speeds up the deal. When an offer comes in, the buyer can review the rules of the game without surprises, and the negotiation runs more smoothly.
- Protects the founder. It defines which decisions require their vote and how much freedom they have to choose buyers.
- Reduces post-closing conflict. The most typical situations (minority shareholders who don't want to sell, disagreements over price, earn-out disputes) are resolved more easily if they were provided for in the agreement.
- Increases valuation. A solid agreement reduces the risk the buyer perceives and, in many deals, that translates into a higher multiple.
The problem with a fragmented cap table
One of the most common reasons M&A deals get complicated or slow down is what the industry calls a fragmented cap table: a shareholder structure with many small shareholders, usually the result of earlier rounds with friends, family & fools, business angels, or multiple startup capital increases. When it's time to sell, you have to convince all of them.
“A partner is someone you marry — it goes even beyond a marriage. And in a closely held limited company, it's hard to get out, and when things go wrong, well, it's not so obvious.” — Maria Rodrigo, partner at FILS Legal
The practical consequences of a fragmented cap table are threefold: (1) it's harder to coordinate everyone to go to the notary, (2) every minority shareholder has veto power if there are no clauses to neutralize it, and (3) the buyer perceives more risk and usually lowers the price or asks for more protections.
That's why the time to think about your shareholders' agreement isn't when the buyer shows up — it's when you're incorporating the company or, at the very latest, when the first outside investors come in.
How to protect the founding team
One of the most common tensions in a shareholders' agreement is the balance between investor control (investors want to make sure their money is well managed) and founder freedom (founders want to be able to set the direction of the project). Maria Rodrigo explains it like this:
“Just as there are reserved matters that require investor votes, I like the founding team to have some freedom to choose the rounds. When a good round comes along, the founder has to be able to choose the partner they want to team up with.”
This translates into specific mechanisms that can be negotiated in the agreement:
- Clearly define the reserved matters. Not every decision should require a qualified investor vote. Day-to-day operational decisions should remain under the founding team's control. Structural decisions (changing the corporate purpose, significant capital increases, selling the company, taking on debt above X) can require supermajorities.
- Freedom to choose the buyer. If an attractive offer comes in, the founder should have room to negotiate with the buyer that's the best cultural fit, not just the one offering the most money — as long as the valuation is reasonable.
- Nuanced anti-dilution clauses. Full anti-dilution clauses (full ratchet) can penalize the founder. Weighted average clauses are more balanced.
- Reverse vesting for founders. It protects the company from a founder who leaves early, but it also defines exactly the conditions of their exit.
Common mistakes that keep an agreement from protecting you
“The contract is meant to be kept in a drawer, and if it comes out, that's a bad sign.” — María Rodrigo
María's words sum up an uncomfortable truth of the legal world: a shareholders' agreement is signed in the hope that it will never need to be used. But when the moment of truth arrives, the most common mistakes we see are:
- Signing the agreement without reading it. Many founders sign the template the investor gives them without understanding what they're giving up. The result: they discover unexpected restrictions when it's already too late.
- Clauses that are too generic. “Important decisions require a qualified majority” isn't a useful clause. You need to list exactly which decisions, what majority, and with what quorum.
- No drag-along. A deal falls through if a 5% minority shareholder refuses to sign the sale. A well-drafted drag-along prevents this.
- Poorly calibrated representations and warranties. If the warranties the seller gives are unlimited or cover unreasonable risks, the buyer can use them to reduce the price after closing.
- Not reviewing the agreement when new shareholders come in. Every capital increase is an opportunity to update the agreement to the company's new reality. If you don't, the clauses can become outdated or internally contradictory.
The importance of a specialized advisor
A recurring observation among M&A lawyers is that deals become much more complicated when the other side has a generalist lawyer rather than a specialist. Maria Rodrigo describes it clearly:
“I'd say the strangest thing that's happened to me has been negotiating with lawyers who don't do M&A. Because they see ghosts everywhere. It's incredibly hard to get them to understand things that are super obvious.”
Standard M&A practices (price holdbacks, escrow, representations and warranties, earn-outs) are routine for a specialized lawyer, but they can seem abusive to one who doesn't deal with them every day. The result: slower negotiations, more distrust between the parties and, in some cases, deals that fall through over disagreements an expert advisor would have resolved in minutes.
If you're preparing a deal and want to understand which type of M&A advisor is right for you based on your company's size and sector, we've put together a dedicated guide that can help you decide.
Listen to the full conversation with Maria Rodrigo
This post covers only some of the ideas we discussed with María on the Rainmaker podcast. If you want to hear the whole conversation — where we go deeper into payment structure, earn-outs, phased sales with rollover, W&I insurance, and the buyer's vs. the seller's perspective in negotiations — listen to the full episode:
Annotated shareholders' agreement template
Attached to this post, you'll find the annotated shareholders' agreement template we've prepared: a 6-page document with a model agreement for a Spanish mid-market SME, with each clause annotated in the margin explaining what it does, why it matters, and what you should negotiate with your lawyer.
