In the early stages of a startup, decision-making power is usually concentrated with the founders - but as you grow, raise money, and issue equity, it’s critical to know who has the legal right to approve what.
Here’s a founder-friendly breakdown of how decision-making works between the board, the shareholders, and the founders themselves.
The Basic Roles
Founders often wear multiple hats - officers, directors, and shareholders. But legally, the power to make key decisions is divided among:
- The Board of Directors: Responsible for overseeing the company’s direction
- Shareholders: Owners of the company who vote on certain major issues
- Officers (e.g., CEO): Handle day-to-day operations
Each group has different legal authority under corporate law and your company’s governing documents.
What the Board of Directors Approves
The board generally has control over:
- Approving fundraising rounds
- Granting stock options or issuing shares
- Hiring or firing executives
- Approving budgets and major expenditures
- Approving M&A activity or IPO decisions
- Amending bylaws (sometimes)
Even if you’re the CEO, some decisions may require formal board approval.
What Requires Shareholder Approval?
Shareholder votes are usually needed for:
- Mergers, acquisitions, or dissolutions
- Amendments to the certificate of incorporation
- Approval of certain financings (if protective provisions apply)
- Stock splits or recapitalizations
- Selling all or substantially all of the company’s assets
After raising money, preferred shareholders often negotiate “protective provisions” - contractual rights that give them a veto over key actions.
What Founders Can Typically Decide
As officers (CEO, COO, etc.), founders generally handle:
- Operational decisions
- Hiring employees
- Signing customer/vendor agreements
- Product strategy
- Marketing and sales decisions
But founders must stay within the boundaries set by the board and shareholders. Acting outside those limits - especially with financial or equity matters - can lead to legal or investor issues.
Best Practices for Founders
- Know your bylaws and stockholder agreements
- Create a decision matrix to clarify who approves what
- Document all approvals and board actions
- Avoid “acting first and asking later” on sensitive matters
- Involve your board early in big strategic moves
Final Thoughts
Clear governance keeps everyone aligned and protects the company - and its founders - from legal missteps. Understanding who holds the decision-making power helps you move fast without breaking things.
When in doubt, ask your counsel or board chair. Better to clarify upfront than fix a broken approval process later.
Frequently Asked Questions
FAQs about Startup Decision Rights
Do all decisions need board or shareholder approval?
No. Most day-to-day operational decisions are handled by officers (often the founders). Only major financial, structural, or equity-related matters typically require board or shareholder approval.
What are protective provisions?
Protective provisions are special rights negotiated by investors - usually preferred shareholders - that give them veto power over key corporate actions like mergers or issuing new stock.
Can founders override the board?
No. Once a board is in place, it has legal authority over major corporate decisions. Founders must work within the governance framework.
How can founders avoid conflicts over decision-making?
By documenting approvals, following bylaws, and keeping communication open with both the board and shareholders. A decision matrix can help prevent disputes.
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