Board Consent: What Founders Should Put In Writing Early

When you are starting a new company or running an early-stage business, it is easy to focus on product, customers, and growth. However, many founders overlook a crucial step: making sure important decisions are properly approved and documented by the board of directors. Failing to get board consent in writing can cause major problems later, from disputes between co-founders to difficulties raising capital or selling the business.

This guide explains what board consent is, why it matters, and what US founders should put in writing early. We will cover when board consent is required, what should be included, and how to avoid common mistakes. You will also find practical checklists, examples, and answers to frequently asked questions. Whether you are forming a Delaware C-corp, an LLC, or another entity, understanding board consent is essential for smooth operations and long-term success.

What Is Board Consent and Why Does It project?

Board consent refers to the formal written approval by a company's board of directors for certain actions or decisions. In most US corporations, the board is responsible for overseeing the company's major affairs, and some decisions require their explicit approval. Board consent can be given at a board meeting (with minutes recorded) or through a written consent document signed by the directors.

Why does this project for founders? Without proper board consent, key actions may be invalid or subject to dispute. For example, issuing new shares, approving a fundraising round, hiring or firing executives, or entering into major contracts often require board approval. If these steps are not properly documented, it can create legal and operational risks down the road. Investors, acquirers, and regulators may ask for proof that these decisions were properly authorized.

In the US, the federal government does not set rules for board consent in business entities. Instead, requirements come from state law (such as Delaware General Corporation Law), the company's governing documents (like bylaws or operating agreements), and any relevant contracts. Founders should always check their state's rules and their own company documents to confirm what actions require board consent and how it should be documented. If you are unsure, consider seeking professional advice on business set up to help support compliance from the start.

When Is Board Consent Required?

Not every business decision needs board consent. However, certain actions almost always require formal board approval, especially in corporations. Here are some of the most common scenarios where board consent is needed:

• Issuing new shares or membership interests: Whether you are a Delaware C-corp issuing stock or an LLC granting membership units, board approval is typically required to issue equity.
• Raising capital: Approving a new financing round, convertible note, or SAFE usually requires board consent.
• Major contracts: Entering into significant agreements, such as leases, large vendor contracts, or key customer deals, often needs board approval.
• Hiring or firing executives: Appointing or removing C-level officers (like the CEO or CFO) usually requires a board vote.
• Setting executive compensation: Board consent is often needed to approve salaries, bonuses, or equity grants for key employees.
• Mergers, acquisitions, or asset sales: Any transaction that changes company ownership or structure generally requires board approval.
• Amending governing documents: Changes to the certificate of incorporation, bylaws, or operating agreement typically require board and sometimes shareholder consent.

For LLCs, the rules may be different. Some LLCs are member-managed and do not have a board, while others appoint a board of managers. In these cases, the operating agreement will set out who has authority to approve major actions. Always review your company's governing documents to confirm what is required.

State law can also affect when board consent is necessary. For example, Delaware law allows boards to act by written consent without a meeting if all directors sign the consent. Other states may have different rules. If your company is incorporated outside Delaware, check your state's corporation code or secretary of state resources.

What Should Be Included in a Board Consent?

A well-drafted board consent document should clearly state what action is being approved, who is approving it, and when the approval takes effect. Here are the key elements to include:

• Title: Identify the document as a "Written Consent of the Board of Directors" or similar.
• Recitals: Briefly describe the background or purpose of the action (for example, "WHEREAS, the Company desires to issue shares to a new investor...").
• Resolutions: State the specific actions being authorized (for example, "RESOLVED, that the Company is authorized to issue 100,000 shares of Common Stock to Jane Doe...").
• Effective date: Specify when the approval takes effect, if not immediate.
• Signatures: Include signature blocks for all directors (or managers, in an LLC) who are required to approve the action.
• Certification: Optionally, include a certification by the secretary or another officer that the consent is accurate and complete.

Some companies use templates for routine matters, but it is important to tailor each board consent to the specific action. If you are approving multiple actions at once (for example, hiring a new CEO and approving a stock option grant), make sure each resolution is clearly stated.

For electronic signatures, most states allow board consents to be signed electronically, but check your state law and your company's governing documents to confirm. Keep signed copies in your company records, as you may need to show them to investors, auditors, or regulators in the future. Having organized documentation is especially important for startups preparing for future investment rounds.

Common Mistakes Founders Make With Board Consent

Many founders make mistakes with board consent, especially in the early stages when formalities can seem less important. Here are some of the most common pitfalls:

• Not documenting approvals: Relying on informal conversations or emails instead of formal written consent can lead to confusion or disputes later.
• Missing required signatures: Some actions require unanimous board approval, while others need only a majority. Failing to get the right signatures can invalidate the consent.
• Using outdated templates: Using a generic or outdated board consent template may not cover the specific action or comply with current laws or your company's governing documents.
• Overlooking state law or company rules: Each state and company may have different requirements for board consent. Failing to check these rules can create legal risks.
• Not keeping records: Losing or misplacing board consents can create problems during due diligence, fundraising, or audits.

To avoid these mistakes, founders should create a checklist for board consents and review it before taking any major action. Here is a sample checklist:

• Check your state's corporation or LLC law for board consent requirements.
• Review your certificate of incorporation, bylaws, or operating agreement.
• Identify which actions require board consent and whether a meeting or written consent is needed.
• Draft a clear, specific board consent document for each action.
• Collect all required signatures (physical or electronic, as allowed).
• Keep signed copies in your company records (physical and/or digital).

Following these steps can help ensure your company's actions are properly authorized and documented, reducing the risk of disputes or delays in the future.

How Board Consent Fits Into Other Company Filings and Approvals

Board consent is just one part of a company's overall governance and compliance process. Many actions that require board consent also require additional filings or approvals. Here are some examples:

• State filings: Amending your certificate of incorporation or articles of organization usually requires both board consent and a filing with your state's secretary of state or the Delaware Division of Corporations.
• IRS filings: If you are applying for an EIN (Employer Identification Number) or making a tax election (such as S-corp status), you may need to show board approval for the action.
• Securities filings: Issuing new shares or raising capital may trigger federal or state securities filings, which often require board-approved resolutions.
• Banking and finance: Opening a company bank account or signing a loan agreement may require a board consent authorizing the officers to act on behalf of the company.
• Employment matters: Approving stock option plans, employment agreements, or executive compensation typically requires board consent and may also require shareholder approval or state filings.

It is important to coordinate board consents with any required government filings or contractual approvals. For example, if you are amending your bylaws, you may need both a board resolution and a filing with your state. If you are issuing stock, you may need board consent, a securities filing, and updates to your cap table.

Founders should keep a calendar or checklist of required approvals and filings for major company actions. This helps ensure nothing is missed and that all steps are properly documented.

Best Practices for Drafting and Storing Board Consents

Creating clear, accurate board consents and keeping them organized is essential for any growing business. Here are some best practices:

• Use clear language: Avoid legal jargon and make sure the resolutions are easy to understand. State exactly what is being approved and who is authorized to act.
• Tailor to the action: Customize each board consent to the specific action. Do not rely on generic templates for major decisions.
• Follow your governing documents: Check your bylaws or operating agreement for any special requirements, such as notice periods or voting thresholds.
• Allow for electronic signatures: If allowed by state law and your company documents, use electronic signature platforms to speed up approvals and keep records organized.
• Keep organized records: Store all signed board consents in a secure, searchable location. Use a digital filing system with clear naming conventions (for example, "2024-06-15_Board_Consent_Stock_Issue.pdf").
• Review regularly: Periodically review your board consent process to ensure it is up to date with current laws and company needs.

For companies with frequent board actions, consider keeping a board consent log or register. This makes it easier to track approvals and respond to investor or auditor requests. If you are unsure about a specific action, consult with a qualified attorney to confirm what is required. Proper board consent practices are a key part of business set up and ongoing compliance.

FAQs

What is the difference between board consent and shareholder consent?

Board consent refers to approval by the board of directors, while shareholder consent is approval by the company's owners. Some actions, like issuing new shares or amending the certificate of incorporation, may require both board and shareholder approval. Always check your governing documents and state law to confirm which approvals are needed for each action.

Can board consent be given by email or electronically?

In most states, board consent can be given electronically, including by email or through electronic signature platforms, as long as all required directors approve and your company's governing documents do not prohibit it. However, it is best practice to use a formal written consent document, signed by all required directors, and to keep a copy in your company records.

What happens if I forget to get board consent for an action?

If you take an action that requires board consent without proper approval, the action may be invalid or subject to challenge. This can cause problems during fundraising, audits, or company sales. In some cases, you may be able to ratify the action later with a retroactive board consent, but this depends on your state law and company documents. It is best to get approvals in writing before acting.

Do LLCs need board consent?

LLCs may or may not have a board of managers, depending on how they are structured. In member-managed LLCs, major actions are usually approved by the members. In manager-managed LLCs, the operating agreement will specify which actions require manager or board consent. Always check your operating agreement and state law to confirm what is required for your LLC.

How long should I keep board consent records?

You should keep board consent records for the life of your company, and at least as long as required by state law or your governing documents. These records may be needed for audits, due diligence, or legal disputes. Digital storage is acceptable in most cases, but make sure records are secure and backed up.

Key Takeaways

• Board consent is a formal written approval by the board of directors for key company actions.
• Common actions requiring board consent include issuing shares, raising capital, major contracts, and executive appointments.
• Requirements for board consent come from state law and your company's governing documents.
• Properly drafted and signed board consents help prevent disputes and support future fundraising or sales.
• Keep organized records of all board consents and coordinate them with required state or IRS filings.

If you need help preparing board consents or understanding your company's approval requirements, contact our team at (888) 449-8437 or team@sprintlaw.com. Where legal services are required, they are delivered by licensed lawyers at trusted US law firms through the Sprintlaw platform.