Capital raising is a critical time for any startup. Take control of your startup’s equity with this free cap table template. It will also allow you to analyse and compare financing rounds to make the best capital raising decisions.<\/p>\n <\/div>\n \n\nDownload Now<\/a> <\/section>\n <\/div>\n\n\n\n\n It is common for the company\u2019s governance documents to contain a list of critical business matters that must be decided at the board level rather than by the company\u2019s shareholders<\/a>. This ensures that the founders will continue to play a prominent role in the critical decision-making of the business, even if their ownership is diluted. <\/p>\n\n\n\n We set out some of the board\u2019s critical business matters below.<\/p>\n\n\n\n You should consult a lawyer before determining the matters that the board can determine. This is because the law limits directors from wresting certain rights from shareholders.<\/p>\n\n\n\n A decision-making threshold is the approval percentage required to pass a resolution or decide on a particular matter. Founders should consider whether the board composition (discussed above) will restrict the founders\u2019 ability to meet the thresholds. This may, in turn, influence the decision-making threshold founders set. <\/p>\n\n\n\n For example, suppose Smith Limited\u2019s board has 5 directors (4 founder directors and 1 independent director). At least 75% of the board must approve critical business matters. In this scenario, the founding team comprises 80% of the board. This ensures they always outnumber \u2018external\u2019 directors and retain the necessary support to approve critical decisions provided that:<\/p>\n Another strategy you can use to retain founder control is to ensure that any given matter obtains the approval of the founders. You may hear this right referred to as a veto power because the founders can vote against a particular issue. <\/p>\n\n\n\n A company\u2019s governance documents likely grant founders and shareholders pre-emptive rights. These give the founders the first right to purchase the pro-rata proportion of new shares the company intends to issue before offering them to outside investors. This right provides founders with a mechanism by which they can \u2018top-up\u2019 their shareholding to avoid dilution when the company issues new shares to raise capital<\/a>. <\/p>\n\n\n\n Another tool founders can use to increase their percentage shareholding is by including a \u2018right of first refusal\u2019 regarding share disposals in the company. Where the company\u2019s constitution or shareholders agreement incorporates this right, any time an existing shareholder intends to sell their shares, the founders have the right to purchase them before outsiders.<\/p>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\nNature of Board Decisions <\/h3>\n\n\n\n
Critical business matter<\/strong><\/td> Summary <\/strong><\/td><\/tr> Capital expenditure<\/td> To enter into any transaction or series of transactions involving a capital expenditure above a specific value. <\/td><\/tr> Asset acquisitions or disposals<\/td> To enter into any transaction or series of transactions in which the company proposes to acquire or dispose of assets above a specific value. <\/td><\/tr> Change in the nature of business<\/td> To cease or materially change the scale of operations and nature of the business activities conducted by the company. <\/td><\/tr> Issuing securities<\/td> To issue any equity securities, including shares, options or other convertible securities. <\/td><\/tr> Loans<\/td> To enter into an agreement or arrangement to grant or take on a loan, line of credit or other financial accommodation other than in the ordinary course of business. <\/td><\/tr> Dividends<\/td> To set, declare or change the company\u2019s dividend policy.<\/td><\/tr> Share buy-backs<\/td> To buy back or redeem shares in the company.<\/td><\/tr> IPO<\/td> To take steps to apply to list the company\u2019s shares on a publicly listed stock exchange.<\/td><\/tr> Winding up or reorganising the Company<\/td> To take steps to reorganise or wind up the company to limit its right to carry on business.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n Decision-making Thresholds <\/h3>\n\n\n\n
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Pre-emptive Rights and Right of First Refusal (ROFR)<\/h2>\n\n\n\n
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Ideally, the board should contain more founders than \u2018external\u2019 directors to ensure the founding team determines the business\u2019 overall strategy and direction. However, this may not be possible when the company has only one founder and brings on new board members.<\/p>\n<\/div>\n\n\n\n
You should consider whether a prospective board appointee has the same vision for the business as the founding team. Otherwise, their appointment may cause disharmony and hinder efficient decision-making and management. <\/p>\n\n\n\n
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