Different Hats Worn by Startup Founders
What exactly does it mean to be a startup “founder”? Beyond just the title, founders often find themselves juggling multiple roles within their company, each with its own responsibilities and expectations. Here are the different roles you need to understand as a startup founder.
Founder
The term “founder” is not rooted in any legal concept. It’s just a vanity title used to identify those folks who were part of the initial team, who came up with the idea of the company, or who simply ran the business in its early stages. Companies can onboard new hires and give them the title of “founder” even if they were not part of the core team.
Incorporator
The title “incorporator” is given to the individual who files the certificate of incorporation with the Delaware Secretary of State to bring the company into existence. Once the company is legally established, the incorporator appoints the initial board of directors and then steps down from this role.
Director
After the resignation of the incorporator, the directors take over the reins to oversee the company’s operations and make key decisions in the best interests of both the company and its shareholders. The board must make such decisions in its own business judgment, considering all relevant factors and becoming fully informed. Any items that would be deemed to be material to the company’s affairs will require approval from the board. Barring any limitations in the corporation’s governing documents, decisions typically require a majority of the directors present in a meeting with “quorum.” A quorum refers to the minimum number of directors that need to be present in the meeting for an action to go through. Under Delaware law, a quorum is a majority of the number of directors, but not less than 1/3rd of authorized number of directors of the company. However, directors can forego board meetings and make decisions through unanimous written consent.
OfficerS
Officers handle the day-to-day affairs of the company and execute decisions of the board. Key positions like Chief Executive Officer, President, Treasurer and Secretary are appointed by the board. The specific duties of these roles are outlined in the company’s bylaws as Delaware law doesn’t define them. The board can also remove officers in its discretion.
STOCKHOLDERS
Stockholders generally do not owe any duties to the company. A stockholder is an owner of the company and may vote their shares in alignment with their interests. Barring any limitations in the company’s governing documentation or any stockholder agreements, actions requiring stockholder approval will need a majority of the voting power of the company. Note the key phrase “voting power,” which means that holders of options, SAFEs, convertible notes, and other convertible instruments are generally excluded unless and until they actually hold capital stock in the company.
Overlap in Roles
It’s common for founders to hold multiple roles simultaneously, but they must adhere to each position’s specific duties and formalities. Certain company actions that require approval from the company’s directors also require approval from the company’s stockholders. For example, directors of the company need to approve amongst themselves and submit to company stockholders for approval:
- Authorization of additional shares reserved for issuance;
- Approval of rights associated with shares of a series or class of shares of the company; and
- Adoption of amendments and/or restatements to the company’s certificate of incorporation.
Each role can have an impact on the other. For example, the company’s directors have discretion when issuing equity to new hires or investors unless there are any limitations in the company’s existing governing documents. Directors can also approve certain vesting conditions to further limit the voting rights of any new hire in the event a new hire ceases to work with the company.
Stockholders vote for the directors to be appointed to the board. Generally, a majority of the voting power among a company’s stockholders can vote to remove a single director from the board. Companies may require similar approval for transactions involving a conflict of interest whereby a director stands to gain a material or financial benefit.
In sum, being a startup founder means navigating a landscape of complex legal and operational responsibilities. Understanding and respecting the nuances of each role can significantly enhance the governance and success of your startup.
