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. The board of directors has ultimate authority over major corporate decisions. Founders who ignore board approval requirements risk invalidating decisions and breaching fiduciary duties. The best approach is collaboration and transparency with the board.
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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