Which decisions need board approval?
GovernanceDirectorsCompliance
Delaware law says the business of a corporation is managed by or under the direction of its board, and the board delegates the day-to-day to the officers. The line between the two is materiality, and for an early-stage company these decisions are always on the board's side of it:
- Amending the certificate of incorporation or the bylaws.
- Issuing, granting or approving the transfer of any stock, option or warrant.
- Borrowing or lending money, including a SAFE or note round.
- Declaring a dividend or any other distribution to stockholders.
- Adopting the annual budget.
- Hiring, firing or changing the terms of senior management.
- Adopting an option plan, a 401(k) or a health plan.
- Selling the company or substantially all of its assets, or dissolving it.
- Entering any agreement that is material to the company: for a small one, the office lease, the key customer and vendor contracts, and any license of its intellectual property.
What does not need the board
Buying supplies. Spending within a budget the board already approved. Signing a routine NDA. Hiring an employee below the senior level, with the option grant that comes with the hire approved by the board separately. Ordinary contracts in the ordinary course. As the company grows the board typically adopts a delegation of authority saying what the CEO can sign alone and above what amount the board sees it.
How the board acts
Either at a meeting, in person or by video or phone, with minutes recording the resolution, or by a written consent signed by every director, which is how startups approve almost everything. A one-founder board signs a one-page consent before the action and files it in the minute book. Equity grants need particular care: an option granted without board approval is not validly granted, an exercise price set without a 409A appraisal is a tax problem for the employee, and a grant that exceeds the shares in the plan is void until the plan is enlarged, which itself needs stockholder approval.
Why bother
Investors read the minute book in diligence, and a company with no consents for its stock issuances reads as a company that does not take its own governance seriously. Fixing missing approvals later costs more than doing them at the time, and usually involves the investors' lawyers. And some things cannot be fixed at all: stock that was never validly issued, a grant to a departed employee that nobody approved, a lease signed by someone with no authority. The consent takes ten minutes.
Arabella's library carries the board consent approving a SAFE round, and the formation packet includes the organizational consent that adopts the bylaws, appoints officers and authorizes the founder stock.
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Written by the lawyers who built Arabella. This is legal information, not legal advice for your situation, and reading it does not make us your lawyers. For a real dispute or a high-stakes decision, talk to a licensed attorney. More questions.