Governance/Risk Management

You’ve Got VC Money: Board vs Stockholder Approval

Authors: Andrew Shawber

While your financing agreements might have other requirements, below is a nonexhaustive list of the types of corporate decisions that typically require board and/or stockholder approval:

Board Approval Is Required to: Stockholder Approval Is Required to:
  • Amend the charter or bylaws.
  • Approve significant corporate transactions (e.g., sale of corporation, merger, sale of substantially all assets, financings).
  • Issue securities (e.g., stock options, SAFEs, etc.).
  • Purchase, redeem, or pay a dividend on any company stock.
  • Approve stock option plans and increases to the option pool.
  • Make commitments or grants of stock options or other equity awards to employees and consultants.
  • Enter into material agreements (e.g., loans, leases, third-party IP licenses or licenses to the company’s technology not in the ordinary course).
  • Hire executive officers or set officer compensation.
  • Approve any other transaction that is out of the ordinary course of the business of the company.
  • Amend the charter or bylaws.
  • Approve significant corporate transactions (e.g., liquidation, sale of corporation, merger, sale of substantially all assets, financings).
  • Elect directors or increase or decrease the size of the board.
  • Purchase, redeem, or pay a dividend on any company stock.
  • Approve stock option plans and increases to the option pool (within 12 months of board approval).
  • Approve interested director transactions (i.e., cleanse conflicts of interest where there are no disinterested board members).

Your financing agreements might also set forth that the director(s) appointed by your investors must approve certain other corporate actions. In general, we recommend informing the board of significant actions even if formal approval is not required. Directors will appreciate that you are keeping them apprised. This can prevent hard feelings later if they are surprised by something serious.

The precise answer to whether board or stockholder approval is required often turns on the corporate charter and other investment documents. We recommend asking us whether a particular item needs approval. We frequently get this question!

Also, board and stockholder actions must be evidenced either by (1) resolutions adopted by written consent or (2) written minutes describing the vote for such actions at a duly noticed meeting. Board actions taken by written consent are required to be unanimous and do not become effective until all directors have executed documentation approving such actions. Stockholder actions need not be unanimous, but additional notice must be promptly given to any stockholders who did not affirmatively approve such actions.

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