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We are in the process of setting up a board structure for our startup. Everybody on the board will have their own veto rights on important matters, such as capital injection, spending limits, getting loans etc..

For the rest of the decisions... we may need the 5 th member to avoid dead lock

There are 2 founders and 2 investor groups. We want to set up a structure with 5 seats 3 for the founders and 2 for investors in order to avoid a deadlock.

For the 5 th seat there are several options.

  1. Get a close friend
  2. Set up a seperate company with 2 founders and get the 5 th seat with the new company. (Although this seams like a workable idea, one of the founders will have to step up for the seat. This makes 2 votes for one founder on the board and one vote for the other.
  3. I'm not sure if this is possible. Give 1.5 voting rights to founders to sum up to 5.

What are your suggestions ?

Thanks

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1 Answer

up vote 2 down vote

If the 5th seat goes to one side or the other then you're basically agreeing up front who wins the vote if there's a tie. That's true whether the 5th seat actually goes in some way to one of the other 4 people (someone gets more than 1.0 votes) or whether it goes to a good friend of one of the 4 people already on the board. You might try to get both sides to agree on a specific, neutral person who would be trusted to make the best decision, but I'd advise against choosing someone who is a good friend to both sides. Instead pick a lawyer not affiliated with either side's legal team or a board member for some other non-competing company. If you live and work in a city with an entrepreneurial incubator program you might find someone there who can help.

One last thing, an outside lawyer or board member might be an expensive proposition. Their insight might be helpful during regular board discussions, but you might agree to bring them in only when there's a 2-2 tie on a vote.

Good luck!

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