Introduction
The problem surfaces during legal due diligence for a follow-on transaction. A new lead investor issues a term sheet with conditions. The conditions require simplifying the cap table first. The GC pulls a three-year-old Shareholder Agreement. A minority investor holds a consent right over equity issuances. The company cannot take the new capital without that consent. The negotiation has already shifted.
What the company signed at Series A and what it believes it signed are rarely the same Shareholder Agreement. That gap is where transactions stall.
The governance structure is assumed to flex when a transaction is clearly beneficial. That assumption does not hold when incentive structures have drifted. A fund approaching its lifecycle end carries obligations to its own LPs that the Shareholder Agreement was not drafted to account for. The document did not anticipate that the company would evolve while the governance provisions around it stayed fixed.
