Board Consents For Fundraising: What Founders Should Put In Writing Early

For many US startup founders, the excitement of raising capital can overshadow the less glamorous, but critical, task of documenting board consents for fundraising. It is easy to assume that a quick email or handshake with your board is enough, especially when you are focused on closing your round and building your product. However, skipping or mishandling board consents can create serious problems: delayed closings, investor mistrust, regulatory issues, or even disputes among founders and directors. This guide answers the most common questions about board consents for fundraising, explains what should be in writing, and highlights state law caveats, practical examples, and common mistakes to help you avoid costly errors.

What Are Board Consents For Fundraising?

Board consents for fundraising are formal, written approvals from your company's board of directors authorizing the company to issue new shares, convertible notes, SAFEs, or other securities to investors. These consents are required by law in most states and by your company's own governance documents. They serve as the official record that the board has reviewed and approved the terms of your fundraising round.

There are two main ways boards can give this approval:

• Board resolutions at a meeting: The board meets (in person or virtually), discusses the fundraising, and votes to approve it. The approval is recorded in the meeting minutes.
• Written consents in lieu of a meeting: The board signs a written document approving the fundraising without holding a formal meeting. This is common for startups, especially when directors are in different locations or when time is tight.

Board consents typically cover:

• The type and number of securities to be issued (e.g., common stock, preferred stock, SAFEs, convertible notes)
• The price per share or instrument, and any key terms (such as valuation cap, discount, liquidation preferences, or voting rights)
• Approval of the main transaction documents (such as Stock Purchase Agreements, SAFE or Note Purchase Agreements, Investor Rights Agreements, and side letters)
• Authorization for specific officers or directors to sign documents and close the transaction
• References to the relevant state law and your company's certificate of incorporation or bylaws as the source of board authority

Without a proper board consent, your fundraising round may not be legally valid. This can cause problems with investors, create regulatory risk, and complicate future rounds or exits.

Why Board Consents Matter: Legal, Practical, and Investor Reasons

Board consents are more than just paperwork, they are a core part of your company's legal and business foundation. Here is why they matter:

• Legal authority: In Delaware (the most common state of incorporation for US startups) and most other states, only the board of directors can authorize the issuance of new shares or securities. If you skip this step, the issuance can be void or voidable, which means it could be challenged or unwound later.
• Investor confidence: Investors expect to see clear, written evidence that the board approved the fundraising. If your records are incomplete or missing, investors may delay closing, demand extra warranties, or even walk away.
• Regulatory compliance: The SEC and state securities regulators may review your records during an audit or investigation. Proper consents show that you followed the right process and help protect your company and directors from claims of unauthorized actions.
• Internal governance: Board consents create a clear paper trail. This protects founders and directors if there are disputes later about who approved what, when, and under what terms.
• Future due diligence: If you plan to raise more capital, sell your company, or go public, lawyers and investors will review your board consents as part of due diligence. Missing or incomplete consents can delay or derail deals.

For example, imagine a Delaware C-corp startup raising a $1M seed round with SAFEs. If the board only gives verbal approval, and a year later an investor claims the issuance was unauthorized, the company could face legal challenges, need to redo paperwork, or even face regulatory scrutiny. Proper board consents help avoid these risks.

What To Include In Board Consents: Practical Examples

Each fundraising round is different, so your board consent should be tailored to the specifics of your deal and your company's governance documents. Here is what to include, with practical examples:

• Recitals: A brief background explaining the purpose of the fundraising, such as "The Company desires to raise up to $2,000,000 through the issuance of Series Seed Preferred Stock."
• Approval of terms: Specify the type, number, and price of securities. For example, "Approve the issuance of up to 1,000,000 shares of Series Seed Preferred Stock at $2.00 per share, with the rights and preferences set forth in the Certificate of Designation."
• Approval of transaction documents: List the agreements being approved, such as "Stock Purchase Agreement, Investors' Rights Agreement, Right of First Refusal and Co-Sale Agreement, and Voting Agreement."
• Authorization of officers: Name the officers or directors who are authorized to negotiate, execute, and deliver the documents. For example, "The Chief Executive Officer and Secretary are hereby authorized to execute and deliver all documents and take all actions necessary to complete the transaction."
• References to authority: Cite the relevant provisions of your certificate of incorporation, bylaws, and state law. For example, "Pursuant to Section 141(f) of the Delaware General Corporation Law and Article IV, Section 3 of the Company's Bylaws."
• Approval threshold: State whether the consent is unanimous or by majority, as required by your bylaws and state law.

For a SAFE round, your consent might say: "Approve the issuance of up to $500,000 in Simple Agreements for Future Equity (SAFEs) on the terms set forth in the SAFE Purchase Agreement, and authorize the CEO to execute all related documents."

Keep signed copies of all consents in your company's records. Investors and acquirers will expect to see these during due diligence.

State Law Caveats: Delaware, California, New York, Texas, and LLCs

While federal securities law (administered by the SEC) sets the baseline for how securities can be offered and sold, state law determines how your company is governed and how board consents must be executed. Here are some key state-specific caveats and examples:

• Delaware: Under the Delaware General Corporation Law (DGCL), board approval is required for all issuances of stock or convertible securities. Written consents must be unanimous if not done at a meeting (Section 141(f)). Delaware does not require you to file board consents with the state, but you must keep them in your records.
• California: California law (Corporations Code Section 307) also requires board approval for stock issuances. Written consents must be unanimous unless your bylaws say otherwise. California corporations may also have extra requirements for notice and recordkeeping.
• New York: New York's Business Corporation Law (Section 708) allows written consents by unanimous approval unless your bylaws permit otherwise. New York also has specific requirements for the content and retention of board consents.
• Texas: Texas law (Business Organizations Code Section 21.415) allows written consents by unanimous approval unless the certificate of formation or bylaws permit otherwise. Texas companies should check their own governance documents for any extra requirements.
• LLCs: LLCs do not have a board of directors by default, but may have managers or members who must approve new issuances of membership interests or securities. The operating agreement and state LLC law will determine who must approve and how. For example, in Delaware, manager-managed LLCs typically require manager approval; in California, member approval may be required for certain actions.

Some states require that written consents be filed with the company's minute book or made available to shareholders. Always check your company's certificate of incorporation, bylaws, and state law before preparing consents.

Industry-specific rules may also apply. For example, in regulated industries like fintech or healthcare, additional board approvals or regulatory notices may be required before fundraising.

For official guidance, review SEC resources on exempt offerings and consult the Delaware Division of Corporations or your own state's corporate division for specific requirements.

Common Mistakes Founders Make With Board Consents (And How To Avoid Them)

Even experienced founders and operators can make costly mistakes with board consents for fundraising. Here are some of the most common errors, with practical examples and tips to avoid them:

• Not getting written approval: Verbal agreements, Slack messages, or informal emails are not enough. For example, a founder who relies on a group email chain instead of a signed board consent may find that investors or regulators will not accept it as valid authorization.
• Using outdated or boilerplate templates: Each fundraising round is unique. If you use a template from a previous round without updating the terms, you may miss key details or fail to approve new documents. For instance, approving a SAFE round with a consent that references only preferred stock can create confusion and legal risk.
• Missing signatures: If your bylaws or state law require unanimous consent, every director must sign. Missing even one signature can invalidate the approval. For example, in Delaware, a written consent without all director signatures is not effective.
• Failing to reference state law or bylaws: Omitting legal citations can create ambiguity about the board's authority. For example, a consent that does not reference the DGCL or your bylaws may be challenged if there is a dispute.
• Not approving all necessary documents: If you forget to approve a key agreement, such as an Investor Rights Agreement or side letter, you may have to go back to the board for a new consent, delaying your closing.
• Ignoring state-specific rules: Some states have extra requirements for board consents, such as notice to directors or recordkeeping. For example, California requires that written consents be filed with the minutes of board proceedings.
• Not keeping proper records: Losing or misfiling consents can cause problems during due diligence or audits. For example, a founder who cannot produce signed consents during an acquisition may face delays or price reductions.
• Assuming LLCs do not need approvals: LLCs may not have a board, but member or manager approval is often required for new issuances. Failing to document these approvals can create similar risks as with corporations.

To avoid these mistakes, use a detailed checklist for each fundraising round, review your company's governance documents and state law, and consult with legal counsel as needed.

Practical Checklist: Preparing Board Consents For Fundraising

Here is a step-by-step checklist to help founders and operators prepare board consents for fundraising:

1. Review your certificate of incorporation and bylaws: Identify the approval requirements for issuing new securities, including whether unanimous or majority approval is needed and any notice requirements.
2. Confirm the current board composition: Make sure you know who all the current directors are and that they are properly appointed under your governance documents.
3. Draft a specific board consent or resolution: Include the type and amount of securities, price, key terms, list of transaction documents, authorization of officers, and references to state law and governance documents.
4. Circulate the draft consent to all directors: Allow time for review and questions. Make sure all required directors sign, whether electronically or in hard copy, following your bylaws and state law.
5. Keep signed copies in your company records: Store both physical and digital copies in your minute book or secure cloud storage. Label them clearly by date and fundraising round.
6. Provide copies to legal counsel and investors as needed: Be prepared to share consents during due diligence or in response to investor requests.
7. Double-check that all transaction documents match the approved terms: If there are last-minute changes to deal terms, update the board consent or obtain a new one.
8. For LLCs, check your operating agreement and state law: Document member or manager approval as required, and keep records as you would for a corporation.
9. For regulated industries, confirm if additional approvals are needed: Consult with counsel if your business is in a regulated sector like fintech, healthcare, or cannabis.

Following this checklist helps ensure your fundraising is properly authorized, reduces legal risk, and builds investor confidence.

FAQs

Do I need board consent for every fundraising round?

Yes. Each time your company issues new securities, whether it is common stock, preferred stock, SAFEs, or convertible notes, a new board consent or resolution is required. Even if the terms are similar to a previous round, each issuance is a separate legal act and must be separately approved.

Can board consents be signed electronically?

In most states, including Delaware, board consents can be signed electronically, as long as your bylaws and state law do not prohibit it. The federal ESIGN Act and most state laws recognize electronic signatures as valid. Always keep accurate records of all signed consents, whether digital or physical.

What happens if I forget to get board consent before closing a round?

If you close a fundraising round without proper board consent, the issuance of securities may be invalid or subject to challenge. This can create problems with investors, regulators, and future acquirers. Often, you can fix the issue by obtaining a retroactive board consent, but this may require additional disclosures and could delay your closing or complicate future rounds.

Do LLCs need board consents for fundraising?

LLCs do not have a board of directors by default, but they usually require member or manager approval for new issuances of membership interests or securities. The operating agreement and state LLC law will determine who must approve and how. Document these approvals in writing and keep them in your company records.

Are there special requirements for board consents in regulated industries?

Yes. If your company operates in a regulated industry, such as fintech, healthcare, or cannabis, you may need additional board approvals or regulatory filings before or after fundraising. Consult with legal counsel to confirm any extra steps required by law or industry regulations.

Key Takeaways

• Board consents for fundraising are essential legal documents that authorize your company to issue new securities and close investment rounds.
• Each fundraising round requires a new, specific board consent or resolution, tailored to the terms of the round and approved by the required directors or managers.
• Common mistakes include missing signatures, using outdated templates, failing to reference state law or company bylaws, and not keeping proper records.
• Federal securities law sets the baseline, but state law and your own governance documents determine how board consents must be executed and recorded.
• LLCs and regulated industries may have different or additional requirements for approvals and documentation.
• Keep all signed consents in your company records for due diligence, regulatory compliance, and future fundraising or exit events.

If you are preparing for a fundraising round and need help with board consents or other corporate documents, contact our team at (888) 449-8437 or team@sprintlaw.com. Where legal services are required, they are delivered by licensed lawyers at trusted law firm partners through the Sprintlaw platform.