The Board Consent in Lieu of First Meeting is the first document that gets the business of the startup going. Here are a few of the most common resolutions adopted by the newly appointed board:
- Appoints the officers
NOTE: Delaware requires at least a President and Secretary. This can all be the same person or 2 different people. And, obviously, you can have as many additional officers as you want. Most startups should also include some sort of Chief Financial Officer.
- Sets forth the authority of the officers (e.g. signing checks, agreements, etc.)
- Establishes the accounting year
- Establishes the principal office address
- Issues the shares creating the shareholders
After this board consent is signed we now have shareholders and the players are all set. It is important to not overlook the sequential process in the formation of the startup. I think it will give you a lot of insight into the structure of a startup. The incorporator (in a purely administrative function) sets the initial members of the board of directors. The board of directors elect the officers and authorize the number of shares issued to the shareholders. To take us full circle, the last thing to understand is that in subsequent years, the shareholders will elect or re-elect the members of the board.
Knowing this formation process should help you understand the hierarchy of power and control from one group of players to the next. The board must always approve any issuance of securities or common stock to shareholders.
However, once the shares are issued, the shareholders are at the top of the food chain because they elect or remove the board members. The board of directors is second in line because the board elects or removes the officers.
Recognizing the concept of different groups of players (i.e. board, officers & shareholders), and understanding the relationship between each group of players will help the founders better organize their technology startup.