Board consents: what needs board approval in year one

If you've incorporated a Delaware C-Corp with your co-founders as the board, the first year brings a steady run of decisions the board has to approve formally. Founders usually make these decisions in conversation and assume the paperwork can follow. For board-level decisions, the signed approval is what makes them legally effective, so knowing which decisions need one, and roughly when they come up, keeps the company's records in step with what it is actually doing.

In its first year, a Delaware C-Corp's board typically approves the bylaws and officer appointments, founder stock issuances, the company's bank accounts, the stock plan and option pool, each option grant, the 409A valuation used to price options, SAFEs or other financings, and any related-party transactions. Some of these, such as the stock plan, charter amendments, and the annual election of directors, also need stockholder approval. Most early-stage companies record all of it through signed written consents rather than meetings.

Below is what comes up at formation, during the first months, and around a first fundraise, with a summary of which approvals also need stockholders.

At formation: the initial board consent

The incorporator's job ends once the board is in place. Unless the certificate of incorporation names the initial directors, the incorporator appoints them by written consent right after filing. The board then acts, usually in one initial consent covering several decisions.

Adopting the bylaws. The internal rules for how the board and officers operate.

Appointing officers. Typically a CEO, a secretary, and often a CFO or treasurer. Officers' authority to sign for the company comes from this appointment.

Approving founder stock issuances. Each founder's share count, price, and vesting terms. The board's approval should come before the stock purchase agreements are signed.

Accepting IP assignments. Approving the founders' assignment of pre-incorporation IP, often as part of the stock purchase.

Authorizing bank accounts. Naming the bank and the officers who can operate the account. Banks often ask for this resolution.

Setting the fiscal year. Most startups use the calendar year.

Authorizing the EIN application and other filings. Including foreign qualification in any state where the company will operate.

The first months: equity for the first hires

Once the company starts hiring, equity approvals become regular.

Adopting a stock plan. The board adopts the plan and reserves the option pool. Stockholders must approve the plan within 12 months before or after board adoption for options under it to qualify as incentive stock options.

Approving a 409A valuation. Options must be granted at or above the fair market value of the common stock. The board relies on an independent 409A valuation to set that value and approves it before the first grant.

Approving each option grant. The board approves each grant, including the recipient, share count, exercise price, and vesting terms. The approval date is the grant date, so the exercise price must reflect the fair market value on that date.

Approving advisor equity. Advisor grants need a written advisor agreement and a board-approved grant, the same as employee options.

Approving officer compensation. Salaries for founder-officers, especially once the company has funds, are usually approved by the board.

Around the first fundraise

Authorizing SAFEs or convertible notes. The board approves the instrument, the terms such as the valuation cap and discount, and the maximum amount to be raised, and authorizes officers to sign with investors.

Authorizing securities filings. Form D with the SEC and any state notice filings.

Approving a priced round. A priced round involves board approval of the financing documents and an amended and restated certificate of incorporation, which then needs stockholder approval before it is filed with Delaware.

Refreshing the 409A valuation. A priced round usually changes the value of the common stock. The board approves a new valuation before granting further options.

Approvals that come up any time

Related-party transactions. A contract between the company and a founder or director, or a company they own, should be disclosed to and approved by the disinterested directors.

Significant contracts. Large leases, loans, or commitments outside the ordinary course of business are usually approved by the board even when officers can sign day-to-day contracts.

Amending the certificate of incorporation. For example, to increase authorized shares. This needs board approval and then stockholder approval before filing.

Indemnification agreements. Agreements protecting directors and officers are approved by the board, often alongside the first outside investment.

Stockholders approve some decisions too

Annual election of directors. Delaware requires directors to be elected by stockholders each year. Early-stage companies commonly handle this by stockholder written consent rather than an in-person meeting.

Good practice for year-one consents

Approve before acting. Sign the consent before the stock purchase agreements, grants, or financing documents that depend on it.

Get every director's signature. Action by written consent requires all directors. An unsigned or partly signed consent approves nothing.

Batch routine approvals. Option grants can be approved together each month or quarter, using the current 409A value.

Keep one minute book. Store every signed consent in date order with the certificate of incorporation, bylaws, and stock ledger.

Date every consent accurately. If an approval came late, ratify the earlier action rather than changing the date.

The bottom line

A first-year Delaware C-Corp's board approves more than founders tend to expect: the setup decisions at formation, the stock plan and every option grant, the valuation that prices them, each financing, and any deal involving a founder. A few of those, the stock plan, charter amendments, and the annual director election, need stockholders as well. Each approval is a short signed consent, and doing them in order costs very little. The alternative is a set of decisions that were made but never recorded, which investors' counsel will ask to see ratified before the company's first priced round closes.

Frequently asked questions

What decisions need board approval in a startup's first year?

Typically the bylaws and officer appointments, founder stock issuances, bank accounts, the stock plan and option pool, each option grant and the 409A valuation behind it, SAFEs or other financings, significant contracts, and transactions involving founders or directors.

Does the board have to approve every stock option grant?

Yes. Each grant needs board approval, including the recipient, number of shares, exercise price, and vesting terms. The approval date becomes the grant date, which sets the minimum exercise price.

Do SAFEs need board approval?

Yes, in practice. The board approves the SAFE terms and the amount to be raised and authorizes officers to sign with investors. Investors' counsel will expect to see this approval later.

Does a Delaware startup need an annual meeting?

Directors must be elected by stockholders annually. Early-stage companies usually do this by stockholder written consent rather than holding a meeting.

Which year-one decisions also need stockholder approval?

Adopting a stock plan, for options under it to qualify as incentive stock options, amending the certificate of incorporation, and electing directors. Most other early decisions need only board approval.

Can the CEO sign contracts without board approval?

For day-to-day contracts, usually yes, if the board has appointed the CEO and the bylaws or a board resolution give that authority. Significant contracts, financings, and equity decisions should still be approved by the board.