Founder shares and shareholders' agreements before startup M&A
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In startup M&A, founder-share problems often surface late in negotiations: a departed co-founder still holds a large stake, the shareholders' agreement dates from an old round, preferred-stock terms make the proceeds waterfall hard to calculate, stock options are unresolved. Fixing these once a deal is on the table costs time and negotiating room. A buyer looks well beyond the business itself, at the shareholding structure, founder involvement and IP ownership, so it is worth reviewing this early.
Keep the registry and cap table aligned
Cap tables get updated regularly, but the shareholder registry, incorporation documents and investment agreements are sometimes maintained separately. Buyer due diligence checks who holds how many shares of which class and what consent rights apply. Stock options, J-KISS instruments and past transfers deserve particular attention. Avoid an agreement that exists on paper but was never reflected in the registry.
A departed founder's shares get heavier with time
A common issue is a co-founder who left early but still holds a significant stake. A buyer cares whether that person will cooperate with the sale or provide consent needed for closing. If buyback, voting restrictions or confidentiality were not addressed at departure, this becomes a source of deal uncertainty. It is better to agree on treatment of departing-founder shares at the fundraising stage, under the Companies Act and the investment agreement, than to scramble once someone has already left.
Shareholders' agreements accumulate round after round
Each funding round tends to add investor consent rights and drag-along or first-refusal rights, and old agreements are not always cleaned up when new ones are signed. Consent scope can differ investor by investor, and deemed-liquidation distribution can drift out of sync with the share-class terms. Drag-along clauses deserve particular scrutiny: who can invoke it, what approval threshold applies, and whether founders themselves are bound. Ambiguity makes the clause unusable exactly when needed, and heavy indemnity obligations placed on minority shareholders tend to draw resistance.
Preferred stock, options and related-party ties
Liquidation preferences and participating or non-participating terms directly affect how much founders, investors and option holders each receive, so confirm the terms match across the investment agreement, articles and issuance terms. Deal structure also affects how unexercised options are treated: assumed, exercised and sold, or cancelled for cash. Option terms are worth designing with an eventual exit in mind. Buyers also check whether a founder personally holds domains or IP used by the business, or has outstanding loans or guarantees with the company, since this connects founder-share review to clean post-closing operation.
LegalAgent reviews fundraising and shareholders' agreements not only for the round at hand, but with an eye toward future fundraising, founder departures, M&A and IPO.