Startups frequently encounter legal challenges as they scale their operations. The lack of specialized legal advice for startups can lead to tax penalties, corporate disputes, and loss of control by founding partners.
Therefore, it is essential that companies understand and comply with legal regulations from the outset to prevent future complications.
Some common mistakes include not properly formalizing capital increases or ignoring the rights of shareholders, which can jeopardize the future of the business. In addition, the lack of a well-defined shareholder agreement can lead to internal disputes that complicate decision-making and the growth of the startup.
Setting clear agreements from the beginning helps prevent conflicts and ensures more efficient management.
The legal risks that can halt your startup if you do not carry out a capital increase correctly
A poorly executed capital increase can cause problems.
Although this operation is key to financing growth, it also involves a series of legal risks that, if not managed correctly, can slow down the company’s evolution, generate internal conflicts, and scare off potential investors.
Unexpected dilution of founders resulting from a failure to protect their equity
Failing to foresee how the founders’ stake will be affected after new investors enter is a very common mistake.
Without the appropriate clauses in the bylaws or in the shareholder agreement, such as anti-dilution mechanisms, it is easy for founders to see their stake significantly reduced, even in early stages.
This not only impacts their decision-making power but also their motivation and position in future rounds.
Conflicts with partners or investors due to lack of transparency or breach of agreements
The lack of clear communication and accurate documentation about the terms of the capital increase can create conflicts with current partners.
This is especially true if unilateral decisions are perceived or if previously signed shareholder agreements are breached.
These conflicts can lead to challenges of corporate resolutions, standstills in decision-making, or even lawsuits that damage the company’s reputation and operations.
Rejection by new investors due to failure to comply with commercial requirements
Professional investors or venture capital funds usually carry out a thorough due diligence process before investing.
If they detect formal or substantial errors in previous rounds, they may reject the operation.
In the worst-case scenario, such errors could call into question the validity of the issued shares or affect the shareholder structure.
Fines for tax violations or for failing to register capital increases correctly
Capital increases must be properly structured not only from a commercial standpoint but also fiscally.
Failure to make the declaration of corporate transactions, omitting the registration of the increase in the Commercial Registry, or not adequately justifying contributions (especially non-monetary ones) can result in tax penalties.
Likewise, failure to register means the capital increase has no effect against third parties, creating legal uncertainty for all parties involved.
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How to carry out a legally secure and strategic capital increase
Capital increases are not merely a means of raising funds; they are also a strategic move that can strengthen the structure of the startup, open doors to new partners, and consolidate its future.
But for this to happen, it is essential that the process is designed with legal rigor, business vision, and alignment among partners.
1. Purpose and objectives of the capital increase
Before making any decisions, it is essential to define the objective of the capital increase.
- Is immediate liquidity needed?
- Are you looking to bring in strategic investors?
- Is the goal to consolidate a pre-seed, seed, or Series A round?
This clarity guides not only the legal structure of the operation but also its narrative towards potential investors.
It is important to analyze whether a capital increase is the best route or if there are alternatives, such as participative loans, bridge rounds, or shareholder contributions without altering capital.
2. Review of bylaws and shareholder agreement
Before calling the meeting, it is necessary to review the company bylaws and the shareholder agreement to check the majorities required for adopting corporate resolutions, as well as ensuring no additional requirements have been set for notarizing a capital increase. Remember that in the shareholder agreement, since it is a private agreement among shareholders, more specific provisions can be established than in the corporate bylaws.
Some key elements to verify are:
- The existence of clauses on pre-emptive subscription rights.
- Limitations on the entry of third parties.
- Requirement for qualified majorities to approve certain decisions.
- Anti-dilution clauses or drag-along/tag-along provisions.
3. Choosing the most suitable type of capital increase
Depending on the stage of the company and investor profile, you can choose between different types:
- Monetary contributions: Entry of new cash funds.
- Non-monetary: Contributions in kind (such as intellectual property, technology, or assets).
- Debt compensation: Converting company debts into shares.
- Bonus issues: Capital increases funded through retained earnings or company reserves.
A share premium can be incorporated to adjust the real value of shares and prevent excessive dilution for current shareholders.
4. Board meeting and formal approval
Once terms are defined, the General Shareholders’ Meeting is convened to approve the increase.
This step must be documented with the meeting minutes, signed agreements, and, if necessary, a notarized record.
If there are external investors, it is also advisable to sign a term sheet establishing key conditions in advance.
5. Public deed and registration in the Commercial Registry
After approval, the capital increase is formalized in a public deed before a notary with the corresponding certificate from the general meeting where the increase was approved.
This step legally formalizes the operation. Afterward, the registration in the Commercial Registry must be completed; without it, the increase will not have legal effects against third parties.
It is also mandatory to notify the transaction to the Tax Agency to comply with tax requirements.
6. Strategic alignment and communication
A well-executed capital increase should fit with the company’s overall strategy.
It is vital to maintain transparent communication with all partners and new investors, explaining how the funds will be used and what impact the transaction will have.
This will reinforce the startup’s image, strengthen alliances, and show business maturity to the ecosystem.
Benefits of getting legally ahead of your startup’s growth
It is not advisable to leave legal matters for the end or the future, because that future comes when it is already too late—this is a very common mistake in many companies.
Acting from the outset can make the difference between scaling solidly or facing bottlenecks precisely when you need to move forward the most.
Avoid long-term conflicts with partners and investors
A well-structured shareholder agreement and bylaws adapted to growth scenarios protect both the founding shareholders and new investors.
This avoids deadlocks, disputes over decision-making, or conflicts due to unexpected dilution. Anticipating mechanisms such as drag-along and tag-along rights, vesting clauses, or orderly exit rules strengthens team cohesion and trust in the project.
Easier access to external investment with a solid legal structure
Investors, especially venture capital funds or professional business angels, look for startups with a clear legal foundation and no hidden risks.
A clean, well-documented corporate structure aligned with market standards reduces perceived risk for investors and streamlines due diligence processes.
Having previous rounds well documented, with no irregularities in the Commercial Registry, properly issued shares, and clear contracts, conveys professionalism and increases the likelihood of closing investment in better conditions.
Reduced tax burden by taking advantage of available exemptions and benefits
The Spanish legal framework, especially through the Startup Law, includes a series of specific tax benefits for these companies: exemption from taxes in certain corporate transactions, incentives for private investment (such as personal income tax deductions for individual investors), or reduced corporate tax rates during the first years.
Proper tax planning from the outset allows you to optimize capital increase decisions, avoid penalties, and structure the entry of capital efficiently.
Ensure legal compliance in future funding rounds
As a startup grows, each new funding round becomes more complex and requires a higher level of regulatory compliance.
If good decisions were not made in the early stages, it is very likely that accumulated errors will come to light and block the process.
Being legally proactive means preparing the startup to grow without friction, allowing each new capital increase to be executed quickly, safely, and without endangering the validity of previous shares.
Secure your startup’s legal and financial future today
Every legal decision you make in the early stages makes the difference between smooth growth or future bottlenecks. Having clear bylaws, a solid shareholder agreement, and rigorous control of capital increases is not just a formality: it is a strategic pillar for attracting investment, protecting your project, and consolidating alliances.
Professional investors look for startups that convey solidity and transparency. An organized cap table, properly issued shares, and a well-defined company structure are factors that increase your credibility and speed up closing rounds.
Optimizing your tax strategy and shielding your processes now not only prevents penalties but also maximizes your company’s value.
Every mistake you avoid today is a growth opportunity you preserve for tomorrow.
Do not let legal gaps hinder your progress when you have the most potential.
Anticipate your startup’s success by building a strong legal foundation from the start, ready to scale, endure, and lead.
Contact the team at Supra Legit lawyers, the legal and tax advisory for startups and companies.
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