Board seats versus majority ownership of shares versus preferred stock, and other deal terms: which provide the greatest actual decision-making power?

The allocation of decision making authority within a corporation will ultimately depend on several factors that, unfortunately, do not lend themselves to a clear-cut answer. First, the laws of the jurisdiction under which the corporation was created will dictate the balance of power about decision making within a corporation. Some jurisdictions may place limits on the decision making a board or directors may exercise and also outline the power afforded to shareholders regarding being consulted on certain decisions or allocating the right to decide who sits on the board of directors. Therefore, the type of class of stock issued to shareholders and the rights to decision making power the shareholders receives from a class of stock will depend on state law. Further, a corporation may also, within the parameters of state law, grant certain shareholders, such as those holding a majority of shares in the company or a designated percentage of shares, such as 40%, to be granted decision making power.

In sum, one is best served by examining the laws of the state in which the company will be incorporated and then using these guidelines as a template to allocate decision making power within a corporation. For those seeking to maximize decision making power among certain individuals in a corporation or limit the decision-making power of other individuals it would be beneficial to find a state with laws favorable to this strategy and structure corporate agreements and contractual rights of shareholders accordingly. Most corporations will speak to legal counsel when they’re faced with these questions. The experienced and vetted attorneys on LawTrades can surely assist you. The attorneys on our marketplace have worked for Fortune 500 companies in the past, and worked at Big Law firms that do this stuff on a daily basis. Visit us and we’ll quick connect you with top talent to figure this out for you. Best of luck!

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