Articles of Association and Shareholders’ Agreement in a Fundraising Round — 2026 Guide
Table of contents
- Understanding what’s at stake in legal negotiations
- Why legal negotiation is a key moment in fundraising?
- Articles of association and shareholders’ agreement — Distinct roles depending on the legal form
- Governance — Organizing power and preventing deadlocks
- Share rights — Different classes and negotiation stakes
- Liquidity mechanisms — Planning the exit
- Valuation is never analyzed in isolation
Understanding what’s at stake in legal negotiations
Founders often approach fundraising primarily through the lens of valuation. Yet in practice, the true economics of the deal are decided in the articles of association and the shareholders’ agreement.
These documents structure not only the cap table, but above all power, governance, risk sharing, and how value is allocated at exit.
If negotiated poorly, they can create long-lasting deadlocks—sometimes invisible at closing. If built well, they become a tool for alignment and protection for all stakeholders.
1. Why legal negotiation is a key moment in fundraising?
Raising money is not only about convincing an investor that a project is strong. It is a long-term partnership in which founders and investors agree to share risk, decision-making power, and the value created.
Negotiating the articles of association and the shareholders’ agreement translates that relationship into clear, anticipated, enforceable rules, designed to withstand the ups and downs of growth and the tensions inherent in any entrepreneurial journey.
2. Articles of association and shareholders’ agreement — Distinct roles depending on the legal form
2.1 Articles of association — A more or less flexible framework depending on the structure
The articles of association are the company's legal foundation. They are public, enforceable against everyone, and subject to mandatory rules tied to the legal form.
The French SAS offers broad flexibility, allowing tailor-made governance, voting rights, the creation of different share classes, and certain control mechanisms. It is now the form best suited to fundraising rounds.
The SA is more tightly governed by the French Commercial Code, which reduces room for negotiation in the articles and mechanically increases the role of the shareholders’ agreement.
The SARL leaves little room for advanced contractual arrangements and is rarely compatible with institutional fundraising.
2.2 Shareholders' agreement — The political and economic deal
The shareholders' agreement is a private, non-public contract that organizes the company's real governance, shareholders' economic rights, liquidity and exit mechanisms, and founders' commitments.
In an SAS, it complements the articles. In an SA or SARL, it often becomes the main tool for organizing the real balance of power, within the limits of contractual enforceability.
3. Governance — Organizing power and preventing deadlocks
Governance is sometimes perceived as a constraint imposed by investors. In reality, it is a decision architecture, designed to frame high-impact decisions and prevent future conflicts.
3.1 The Board of Directors / Board — Definition and operating principles
The board of directors, or Board, is the body responsible for defining the company's strategic direction, supervising execution by management, and overseeing key financial, legal, and operational risks.
It is neither an operational body nor a simple advisory committee. The Board is a decision-making forum whose choices can commit the company for the long term.
In SAS structures, a board is not legally required and exists only if shareholders choose to create it—making it one of the first negotiation topics in a fundraising round.
Its operation rests on structuring principles such as collective decision-making, member responsibility, meeting cadence, and formal traceability of decisions.
3.2 Board composition — Above all a political balance
Board composition determines who truly influences strategy, who controls major decisions, and who can block or accelerate certain initiatives.
Negotiations typically focus on the number of members, the split between founders and investors, the possible presence of independent directors, and the use of observers without voting rights.
The goal is not domination by one side, but balance between entrepreneurial vision and risk control.
3.3 Quorum and majority rules — The power to block
Quorum and majority rules determine when a Board meeting can validly be held and under what conditions a decision is adopted.
Requiring the presence of a founder or an investor, or introducing qualified majorities, allows certain decisions to be reserved for consensus situations and prevents unilateral decisions on sensitive topics.
3.4 Reserved Matters — Framing risk-taking without disempowering the CEO
Reserved Matters are decisions that would normally fall within management’s authority but are subject to prior approval by the Board or shareholders.
They aim to share responsibility for structuring decisions—those that can have an irreversible impact on company value.
A list that is too broad can paralyze execution, while a list that is too narrow can expose investors to excessive risk. Negotiations therefore focus on the scope of the covered decisions, financial thresholds, clause duration, and approval procedures.
3.5 Management powers — Autonomy under oversight
The objective is not to restrict management, but to clarify the perimeter of authority.
A precise framework secures execution, limits ambiguity, and reduces sources of conflict during rapid growth phases.
3.6 Anticipating deadlock situations
Even with balanced governance, disagreements are inevitable. Agreements therefore include mechanisms to avoid stalemates, such as mediation, casting votes, or certain exit clauses.
4. Share rights — Possible classes and negotiation stakes
An investor entering the cap table is not just about an ownership percentage. Share rights determine how power, financial flows, and exit value are allocated.
Ordinary shares carry standard rights, but can include adjustments such as multiple voting rights or time-based double voting rights.
Preferred shares can attach specific economic or political rights to certain securities and are the core structuring tool in fundraising.
Dividend rights can also be tailored, notably through preferred dividends or catch-up mechanisms, which structure priority order among shareholders while remaining consistent with a growth strategy.
Anti-dilution mechanisms aim to protect investors if a later round is raised at a lower valuation. Among these, ratchets play a central role. A full ratchet offers maximum protection but is highly dilutive for founders, while weighted ratchets are today's market standard and more balanced.
Valuation can therefore never be analyzed in isolation, without considering the full set of economic rights attached to the shares.
5. Liquidity mechanisms — Planning the exit and avoiding deadlocks
A fundraising round should not be seen only as growth financing, but also as the entry of investors whose goal is ultimately to exit. Liquidity mechanisms anticipate that moment and organize the conditions under which shares can be sold without creating value-destructive deadlocks.
Pre-emption rights allow existing shareholders to acquire, as a priority, the shares another shareholder intends to sell. They help control ownership changes but, if too rigid, can hinder liquidity. Their effectiveness therefore depends on finding the right balance between control and flexibility.
Co-sale rights, or Tag Along, protect minority shareholders by allowing them to sell their shares on the same terms as a majority shareholder. They ensure equal treatment and protect minorities in the event of a change of control.
Conversely, a forced-sale clause, or Drag Along, allows one or more majority shareholders to impose a sale of all shares. It is essential to enable a full exit—often required by acquirers—but must be framed by strict safeguards to prevent a forced sale on unfavorable terms.
Some agreements also include secondary liquidity mechanisms, enabling partial sales before a global exit. These must be used with care to preserve founder alignment and external perceptions of governance.
All of these mechanisms must form a coherent, readable, legally robust package. Poor articulation between pre-emption, Tag Along, and Drag Along can lead to conflicts or block an otherwise value-creating transaction.
Valuation is never analyzed in isolation
The headline valuation in a fundraising round reflects only part of the deal’s economic reality.
The articles and the shareholders’ agreement—through governance, economic rights, and liquidity mechanisms—determine the effective allocation of power, risk, and value.
A successful fundraising round is one that anticipates these topics with rigor, clear-eyed judgment, and balance—treating the investor–founder relationship as a partnership built to last, not a simple financial transaction.