Shareholders’ Agreement for Startups: Practical Guide and Clause Checklist

A shareholders’ agreement is a private contract between those involved in the company (including investors where applicable) that structures their relationship and prevents disputes. It does not replace the bylaws, it complements them. While bylaws are mandatory, are filed with the Mercantile Registry, and are enforceable against third parties, the shareholders’ agreement is flexible, confidential, and binds only its signatories. It relies on freedom of contract under Article 1255 of the Spanish Civil Code and allows a startup to set rules on entry and exit of shareholders, vesting and retention commitments, additional rights, or call and put options, always within the limits of the law and public policy. In Spain’s startup ecosystem, it is considered a key tool to give certainty to founders and investors and to avoid paralysis or surprises as the company grows.

Contractual nature of the agreement vs. bylaws

The shareholders’ agreement is a private commercial contract. It is not registered, it has no automatic effect against third parties, and its content can be tailored closely to the business. This flexibility is especially useful in startups to agree, for example, founder vesting, enhanced information rights, reserved matters, or liquidity mechanisms that do not fit well in bylaws or that should remain confidential. Bylaws, by contrast, are internal rules with erga omnes effect that must comply with the Spanish Companies Act and include the essential elements of the company (name, corporate purpose, capital, management bodies, and transfer regime). It is advisable to coordinate both instruments. Many transfer restrictions (for example, rights of first refusal and tag along) gain strength if they also appear in bylaws, whereas more internal provisions (incentive plans, retention or exit mechanics) usually stay in the contract. Recent rules allow noting the existence of the agreement in the registry or having the bylaws refer to its observance, which improves transparency, although the agreement remains a contract and does not become a bylaw as a result.

Conflicts between the shareholders’ agreement and the bylaws

If there is a contradiction, bylaws prevail at the corporate level. A corporate resolution adopted in accordance with the Companies Act and the bylaws will be valid even if it breaches the contract. The remedy then moves to contract law (specific performance, damages, and, where agreed, penalties). Not everything agreed between shareholders can be moved into bylaws. Reserved matters or vetoes in favor of a shareholder or investor are viable in the contract, but bylaws cannot strip the management body of its functions or undermine majority rule. Drag along clauses are only registrable if there was unanimous initial consent and if a fair or reasonable price for the dragged shareholder is guaranteed. In practice many are executed from the contract using options or powers of attorney. Post-exit non-compete obligations are essentially contractual and require proportionate time and scope, without prejudice to the statutory duty of non-competition for directors while in office (Article 230 of the Companies Act).

The practical takeaway is twofold: align contract and bylaws on the essentials to maximize effectiveness against third parties, and keep in the contract whatever, for confidentiality or legal limits, should not or cannot be filed.

Common clauses in a startup shareholders’ agreement

There is no single model. Each startup adapts the agreement to its reality and to the balance between founders and investors. Even so, practice has consolidated a set of recurring clauses that organize day-to-day governance and enable orderly exits, always within Spanish law.

Vesting and founder retention

Vesting ties effective ownership to time and commitment. The founder vests equity as time and milestones are met. If they leave before the agreed period, they must transfer or sell the unvested portion to the others or to the company. A typical design is four years with a 12-month cliff and periodic vesting thereafter. Agreements often distinguish good leaver from bad leaver, with different repurchase prices. Since capital cannot be confiscated, vesting is implemented through pre-agreed call options that are exercised if early departure occurs. In limited liability companies, this can be reinforced with a bylaw cause for exclusion linked to breaching the retention commitment, so contract and bylaws work together.

Drag along

Drag along allows the majority, in the face of an offer to acquire all or a substantial part of the company, to compel minority holders to sell on the same price and terms. It prevents hold-outs in a company-wide sale. If taken to bylaws, it usually requires unanimous initial consent and a fair or reasonable price safeguard for the dragged shareholder. If kept only in the contract, effectiveness is ensured with sale commitments, pre-granted options, and, where appropriate, penalty clauses. Proportionality applies (the minority must receive at least the same per-share price as others) and activation is often tied to meaningful approval thresholds.

Tag along

Tag along protects minorities in a change of control. If the majority sells to a third party, the minority has the right to join and sell on the same terms. The majority must notify the offer and allow exercise within a deadline. If the buyer does not take 100 percent, allocations are prorated among those who tag. This protection is often also in bylaws so that it binds future shareholders and is enforceable against third parties. If the majority sells without offering tag, the usual remedy is damages against signatories, without prejudice to the protection of a good-faith purchaser.

Deadlock prevention and resolution

Deadlocks can arise from 50:50 capital structures, tied boards, or unrealistic supermajorities. Prevention starts with governance by design (casting vote, independent director, reasonable reinforced majorities). If a stalemate still occurs, agreements typically provide orderly exit mechanisms. Buy-sell clauses (for example, shotgun or Russian roulette) force one party to make an offer that the other must accept by selling or invert by buying on the same terms. Another variant is a Texas shoot out with simultaneous sealed bids and award to the highest bidder. Solutions are often staged (negotiation, mediation or fast arbitration, and, if no agreement, activation of buy or sell). Notarial conciliation can also be used where appropriate. The aim is to avoid repeated impasses leading to paralysis or grounds for dissolution.

Non-compete and confidentiality

Non-compete protects the business against shareholders or former shareholders leveraging inside knowledge and relationships. While in office, directors are already subject to a statutory non-compete unless authorized. After exit, restrictions must be proportionate in time, scope, and territory. In practice they are limited to the sector defined in the agreement and reasonable geographies, with typical durations of one or two years. Excessive duration or scope can be moderated or struck down by courts. Breach usually triggers a contractual penalty and, at times, call rights over the breacher’s equity at an adjusted price. Confidentiality is drafted broadly and for long terms or for as long as the information remains non-public. Disclosing or misusing secrets activates the agreed remedies and reinforces loyalty among shareholders.

Taken together, these clauses provide a predictable framework for day-to-day governance and for exits, balancing protection of the project with each shareholder’s rights. Fine-tuning depends on stage and investor profile and must respect the Companies Act and contract law limits.

Other important clauses to consider

Right of first refusal (tanteo)

If a shareholder wishes to sell, they must first offer their stake to existing shareholders on the same terms as those agreed with a third party. This helps keep the cap table stable and prevents unwanted entries. It commonly appears in bylaws so it binds future shareholders.

Reverse tag along

A variant of tag along. If a group of minorities receives an offer for all their stake and accepts it, they can require the majority holder to sell proportionally with them. It is not common at every stage but can protect coordinated minorities when the controlling shareholder does not want to exit.

Anti-dilution protection

Protects investors against down rounds. It may grant rights to subscribe additional equity or to adjust the price of existing holdings to neutralize dilution. Formulas include full ratchet and weighted average. Implementation must comply with the Companies Act and often requires careful legal structuring.

Liquidation preference

In a sale or winding up, certain shareholders (typically investors) are paid first up to an agreed amount. A typical setup is return of 100 percent of invested capital (sometimes with a multiple), then the remainder is shared among all. In S.A. companies this is usually implemented via preferred shares. In S.L. companies it is set out in the contract and supported by bylaw adjustments. It is essential to define whether it is non-participating or participating.

Lock up (temporary no-transfer)

Commits shareholders not to transfer equity for a period (for example, until hitting milestones or for a time after a round). It brings stability and aligns founders with execution. It usually includes limited exceptions and consequences for breach.

Enhanced information rights

Beyond the legal minimum, investors may require periodic reporting (for example, quarterly reports), an annual budget, consultation rights, and sometimes a board observer seat. There is often a duty to notify material events. The aim is to avoid blind-spot investing and enable orderly oversight.

Penalties and security

To secure performance, the agreement may include liquidated damages tied to specific breaches. In some cases, real or personal security is added (for example, a pledge over shares or over economic rights) that can be enforced if there is a serious breach.

Investment agreements and conditions precedent

When the agreement accompanies a financing round, it usually captures closing conditions (for example, milestones, corporate housekeeping, IP assignments) and what happens if objectives are not met (for example, valuation adjustments or the right not to fund tranches). It also defines the instrument used (capital increase, convertible loan, or a mix) and its timeline.

Breach and dispute resolution

A well-drafted agreement includes a dispute resolution clause that sets governing law, venue, and, where applicable, arbitration. A staged approach is common (negotiation, mediation, then arbitration or court). Arbitration is often chosen for speed and confidentiality. For technical issues, parties can agree to appoint an independent expert (for example, to value shares).

Breach of bylaws. Bylaws have general effect. Breach can directly affect the validity of resolutions and corporate acts. Unlawful resolutions can be challenged, directors can be held liable, and the Registry will refuse filings that contravene bylaws. In specific cases, bylaws may provide internal sanctions, including shareholder exclusion, subject to legal safeguards.

Breach of the shareholders’ agreement. The contract is not public nor enforceable against non-signatories, so breach does not by itself invalidate otherwise valid corporate acts. Remedies are contractual: specific performance where feasible, damages, and agreed penalties. Courts can order performance, although monetary compensation usually prevails for personal obligations. As preventive reinforcement, call or put options and guarantees can be triggered upon serious breach. Besides arbitration, parties can agree to prior mediation and, where appropriate, notarial conciliation. In any case, breaching the agreement mainly produces economic or contractual consequences and, absent interim relief, does not block corporate decisions. The best strategy is preventive drafting (clarity, balanced interests, and rules everyone understands).

Conclusions

The shareholders’ agreement is essential to align founders and investors, provide stability, and anticipate crises. Its contractual nature offers flexibility, although its effects against third parties do not match those of bylaws. Success depends on coordinating both instruments, protecting the project without stifling it, and setting exit and dispute-resolution mechanisms that can be executed with legal certainty. A good agreement works like peace-of-mind insurance (it is rarely opened because it stops problems from escalating).