What do stockholders generally need to approve?

Before taking an action, a company must ensure all corporate formalities have been followed. By being aware of the corporate formalities in advance of taking such action, a company will be better able to preserve its valuable time, cash and resources, gain confidence from current and future investors, and avoid delaying or blowing up a transaction.

We recommend that companies discuss with their attorneys the specific corporate formalities that they must follow in advance of taking such actions to avoid unnecessary headaches and to ensure company-specific formalities are followed. The following list of items can serve as a reference point of actions that typically require stockholder approval:

1. Amend the company’s certificate of incorporation or bylaws
2. Effect a sale of all or a substantially all of the company’s assets or business
3. Effect a merger, combination, or reorganization
4. Establish stock option plans and amendments to stock option plans (e.g., increase the number of shares set aside for a stock option plan)
5. Elect directors
6. Enter into indemnification agreements with the company’s officers and directors
7. Enter into investment documents for debt or equity financings
8. Enter into a related party transaction

Please note that as a company matures and seeks outside investment, this list will proportionately grow. Investors often will negotiate special stockholder approval rights as a way to control the company and its actions.

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