Co-founder agreements (pacto de socios) and equity splits

Key rules

• Pact vs bylaws: A pact binds only the people who sign it; only registered bylaw clauses bind the company and new partners.
• Transfer bans: Bylaws cannot make sales practically impossible, and a ban on selling needs an exit right for the partner.
• Forced sales: Every forced-sale clause needs a valuation method to be enforceable.
• Profit exit right: After the fifth year, a partner can leave if less than a quarter of distributable profits is paid out.

Why the default law is not enough

Spanish default law protects minority partners and exits only weakly. Do not rely on it. Write a pacto de socios, then copy into the bylaws (estatutos) every clause that has to bind the company. Design each clause knowing what a court will enforce.

What a pact does and does not do

A pacto de socios is a normal contract between the people who sign it. If someone breaks it, the others can claim damages, ask a court to force performance, or use a penalty clause.

It does not bind the company. Courts have confirmed that breaking a private pact does not, by itself, cancel a decision taken by the company's meeting. So a pact alone cannot stop a sale the company has approved.

A clause in the bylaws is different. Once it is registered in the Registro Mercantil, it binds the company and any new partner. Transfer restrictions, special majorities and extra duties for partners belong there.

The decision block below helps you choose where each protection should live.

What you get without any agreement

In a limited company (SL), these are the defaults:

• Partners can transfer shares freely among themselves, and to a spouse, parents, children and group companies.
• Any other sale needs approval at the general meeting, after written notice to the company.
• If the meeting refuses, the company must find the seller a buyer or buy the shares itself at fair value. The time limit is three months.
• Death transfers can only be restricted by giving the other partners a right to buy at fair value.

Minority rights are modest:

• Every partner has a right to information and can examine the accounts.
• Holders of 5% can call a general meeting, ask for an auditor if none is required, and bring a claim on the company's behalf.
• Holders of 1% can challenge resolutions in an SL.
• Partners have pre-emption rights in capital increases.

The exit right most founders miss

A partner can leave and be paid out for certain changes: a new corporate purpose, a longer term, reactivation, moving the registered office abroad, or new extra duties for partners.

A partner can also leave if the meeting does not distribute at least one quarter of the legally distributable profits. This applies after the fifth year from registration. Notice must be given within one month of the meeting.

What bylaws can and cannot restrict

You can make transfers freer or stricter. You cannot make them practically impossible.

• Free transfers between partners cannot be banned.
• A ban on selling to outsiders is valid only if the partner can leave at any time.
• A ban for a set period is valid only with an exit right, and the initial period is capped at five years.

A clause that goes beyond this risks being invalid, so a lawyer should check it before you register.

Clauses founders usually agree

These are market practice, not legal rules, so negotiate them:

• Vesting. Shares are earned over time, typically four years with a one-year cliff.
• Good and bad leavers. A good leaver usually keeps vested shares or gets fair value. A bad leaver sells at nominal value or a discount of around 50% to fair value.
• Drag-along and tag-along. Drag-along usually applies when holders of 51% to 75% accept an offer. Tag-along lets minority partners sell on the same terms.
• Non-compete and exclusivity. Often one to two years.
• Deadlock. Escalate from mediation to a shoot-out or a put and call option. Dissolution is the last step.

Add a valuation method to every forced-sale clause. Without one it may not be enforceable.

Equity splits

Agree the split, and tie it to vesting, before the company is registered. Equal splits are easy but leave no tiebreaker, so choose a deadlock route at the same time. The clause template below gives wording to start from.

Use the checklist, timeline, documents list and warnings below as you draft.

Choosing between options

Where should each protection live: in the pact only, or in the pact and the bylaws?

• Pact only: The clause only concerns the founders, such as non-compete or exclusivity for one to two years, or vesting details.

• Pact and bylaws: The clause must work against the company or against people who join later, such as transfer restrictions, special majorities, pre-emption or leaver and drag-along terms.

• Rely on the default law: Your needs are covered by default minority rights, such as calling a meeting at 5% or challenging resolutions at 1%.

If a clause must be enforced against the company or a new partner, put it in the bylaws as well as the pact. Otherwise the pact is enough.

Timeline and deadlines

• Tell the company in writing that you want to sell to an outsider: before the sale

• If the meeting does not agree, the company must find you a buyer or buy the shares at fair value: within three months

• Keep any bylaw ban on sales within the legal limit for the initial period: five years at most, and only if partners can leave

Documents you need

• The signed pacto de socios (shareholders' agreement), signed by all the co-founders. It binds the signatories as a contract: it covers vesting, leaver terms, drag-along and tag-along, non-compete, deadlock and similar clauses, and any forced-sale clause needs a valuation method written into it.

• The company bylaws (estatutos) amended with the clauses that must bind the company and new partners, such as transfer restrictions, special majorities or ancillary obligations. The change takes effect against others once it is registered in the Registro Mercantil.

Checklist

• Sign a written pacto de socios with all co-founders, so each partner can claim damages or specific performance if another breaks it.

• Put into the bylaws any clause that must bind the company and future partners, and register the change in the Registro Mercantil.

• Agree a vesting schedule, typically four years with a one-year cliff.

• Write good-leaver and bad-leaver terms, such as vested shares or fair value for good leavers and nominal value or a discount of about 50% for bad leavers.

• Set drag-along and tag-along terms, for example drag-along when holders of 51% to 75% accept an offer.

• Choose a deadlock route, from mediation to a shoot-out or put and call option, with dissolution as the last step.

• Check which minority rights each partner already has by default: 5% can call a meeting, and 1% can challenge resolutions.

What to watch out for

• A private pact does not bind the company: Agreements between partners that are not in the bylaws cannot be used against the company, and breaking one does not by itself cancel a company decision. You are left claiming damages from the partner. Put transfer restrictions, special majorities and ancillary obligations into the bylaws and register them in the Registro Mercantil.

• Over-strict transfer rules can be invalid: Bylaws cannot make transfers practically impossible or ban free transfers between partners, and a total ban on sales is valid only if a partner can leave at any time. Keep any lock-up to five years at most and give partners a way to exit.

Key clauses for a Spanish co-founder agreement

Use this as a checklist for the pacto de socios between co-founders of a Spanish SL. The pact binds only the people who sign it. If a founder breaks it, you can claim damages, ask a court to enforce it, or apply a penalty clause, but the company's decisions stay valid. Anything that must also bind the company and future partners, such as transfer limits, special majorities or extra obligations, has to go into the bylaws and be registered in the Registro Mercantil. Have a Spanish lawyer draft the final text.

Clauses to include

Fill the blanks with your own terms. The figures in brackets are common market practice, not legal requirements.

1. Vesting

• Each founder earns their shares over [4] years, with a first cliff after [1] year.
• If a founder leaves before the cliff, they keep [no] shares.
• After the cliff, shares vest [monthly] until [date].

2. Good leaver and bad leaver

• A good leaver is a founder who leaves for [reasons, e.g. illness, death, removal without cause]. They keep vested shares or sell them at fair value.
• A bad leaver is a founder who leaves for [reasons, e.g. serious breach, competing, fraud]. They sell at nominal value or at a discount to fair value, often around 50%.
• Fair value is set by [independent valuer chosen by ___ / formula ___]. A forced sale clause needs a clear valuation method to be enforceable.

3. Transfer of shares

• Founders may not sell to outsiders without first offering the shares to the other founders at [price or formula] (pre-emption).
• Lock-up: no sale for [___] years, only if the bylaws also give each partner a right to leave. In an SL, a lock-up on the initial period cannot run longer than five years.
• Transfers between founders cannot be banned. Restrictions cannot make selling practically impossible.
• If a founder dies, the only restriction allowed is a right for the other partners to buy the shares at fair value.

4. Drag-along and tag-along

• Drag-along: if founders holding [51–75]% accept a buyer's offer, the others must sell on the same terms.
• Tag-along: if a founder sells, the others may join the sale on the same terms.

5. Non-compete and exclusivity

• Each founder works on the project [full time / ___ hours] and does not work on a competing business.
• The non-compete runs during the relationship and for [1–2] years after leaving, limited to [activity and territory].

6. Deadlock Follow these steps in order:

1. The founders meet within [___] days to discuss the issue.
2. If that fails, mediation with [named mediator or body] within [___] days.
3. If that fails, choose one: a shoot-out (one founder names a price, the other chooses to buy or sell at it), or a put and call option at [formula].
4. As a last resort, dissolve the company.

7. Decisions needing a special majority

• List the decisions that need []% of votes, for example new share issues, budget, borrowing above [€], selling key assets.

8. Enforcement

• Penalty for breach: [€___ or formula].
• Governing law: Spanish law. Disputes go to [courts of ___ / arbitration in ___].
• Founders agree to put the transfer, majority and extra-obligation clauses above into the bylaws and to register them.

Before you sign

• Check that each clause is in the right place: the pact for what only binds the founders, the bylaws for what must bind the company and new partners.
• Check any lock-up or transfer ban against the exit-right rule above.
• Agree the valuation method now. Fighting over it at the moment of a founder's exit is the usual cause of disputes.

Frequently asked questions

What happens if the other partners refuse to approve my share sale?

If the general meeting refuses a sale that needs its consent, the company must find you a buyer or buy the shares itself at fair value. It has three months to do this. The rule applies to sales outside the free groups, such as sales to people who are not partners, spouses, ascendants, descendants or group companies.

Can our bylaws ban share sales completely?

No, the bylaws cannot ban sales completely, because they cannot make transfers practically impossible. Sales between partners must stay free. A ban on sales to outsiders is valid only if the partner can leave at any time, and a ban for a set period can last five years at most for the initial period, again only if exit is allowed.

When can a minority partner force the company to buy them out?

A minority partner can leave and be paid out in specific cases, such as a change of the company's purpose, a move of the registered office abroad or new ancillary obligations. They can also leave if the company does not distribute at least one-quarter of its distributable profits after the fifth year of registration.

Does a bad-leaver clause in our pact bind the company?

No, a bad-leaver clause in a private pact binds only the founders who signed it. To make it work against the company and future partners, put it in the bylaws.