If my buddies and I own more than 50% of the corporation, don’t we control it?

Friday, October 19, 2007

Fred Greguras, Fenwick & West, http://www.fenwick.com/

You may if it is prior to a VC financing and you also control the Board of Directors of the corporation. Both the board of directors and shareholders have a right to approve key decisions of the corporation. Board decisions are made on the basis of one person, one vote rather than on a percentage of ownership so you need to be careful with the size and composition of the board. The preferred stock holders in a VC financing will have what are called protective provisions which give them “veto rights” over key decisions like a new round of financing or selling the corporation without regard for their percentage of ownership of the corporation.

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