As a startup founder, what reasonable bylaws are commonly setup to maintain control of the board?

This is to prevent hostile take overs, transfer of assets and etc.

  • In what country? Why do you need a board? Usually as a start-up, you don't necessarily need to form a C-Corp, an LLC works just fine which has a different (simpler) legal structure. How many founders? Do they all have equal shares? – Ron Beyer Aug 31 '19 at 13:54
  • I'm in Australia. There are 2 founders. one 80%, one 20% share. We are a proprietary limited company. Will be getting investors soon. – user1034912 Aug 31 '19 at 14:05
  • I'd do it so that 1 share = 1 vote, then the 80% person can vote themselves chairman of the board. Make it so that a majority vote is needed for any resolution to pass (which is common). However your investors may have different ideas, depending on how they want to realize the profit. Remember when getting investors, their goal is to make money, not necessarily see you succeed. – Ron Beyer Aug 31 '19 at 14:12
  • Thanks for your reply, I thought the '1 share = 1 vote' is only valid in the shareholder's meeting. In board meetings, everyone has equal share. Because there will be Independant Directors with no shares in the company – user1034912 Aug 31 '19 at 14:28
  • It's worth noting that bylaws can and will be altered - if your bylaws are incompatible with whatever control conditions you negotiate with your investors, then the bylaws won't protect you from control change - in order for the deal to proceed, you'll simply have to change the bylaws, or possibly even reincorporate the company as a new entity. – Peteris Sep 1 '19 at 12:11

Your outside investors, particularly if they are professionals, will likely demand all the control they think they need to protect their interests. If you want to retain control of the board you will either need your investors to be friends and family, very naive, or wait until you are very successful to take in outside money.

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  • Thanks for the answer – user1034912 Sep 1 '19 at 5:33

The ‘Golden Rule’ applies

The ‘Golden Rule’ goes like this - the person with the gold makes the rules. If you want them to invest, you have to agree to their conditions.

That said, the agreement is usually independent of the company’s constitution - it is usually a separate contract commonly referred to as a shareholder’s agreement.

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