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The board of directors is the legal center of a corporation. It elects officers, approves budgets and stock grants, signs off on financings and decides whether to accept an offer to buy the company. At formation a startup's board is often just its founders. Each priced round usually adds an investor seat. By the time a Palo Alto company reaches a Series B, the board can decide whether the founder stays CEO.
This page is general information, not legal, tax or financial advice. Corporate law depends on where your company is incorporated and on your own charter, bylaws and voting agreement. Ask a startup lawyer before you change your board.
What the board does
- Hires and oversees the CEO. The board can also remove the CEO.
- Approves major actions. Financings, option grants, large contracts, budgets and a sale of the company.
- Sets equity grants. Option grants need board approval at an exercise price supported by a 409A valuation.
- Owes fiduciary duties. Directors owe duties of care and loyalty to the corporation and its stockholders as a whole, not only to the investor that appointed them.
That last point surprises some founders. An investor director must act for all stockholders when acting as a director, even though the fund chose the seat. Conflicts arise most often in down rounds and sales, which is why lawyers pay close attention to process in those moments.
Board composition by stage: a worked example
The table below is hypothetical. It shows a common path for a venture-backed Delaware company. Real boards vary widely.
| Stage (hypothetical) | Common seats | Investor seats | Independent seats | Total votes | Votes for a majority |
|---|---|---|---|---|---|
| Formation | 2 founders | 0 | 0 | 2 | 2 |
| Seed on SAFEs | 2 founders | 0, plus 1 observer | 0 | 2 | 2 |
| Series A | 2 | 1 | 0 | 3 | 2 |
| Series B | 2 | 2 | 1 | 5 | 3 |
Reading the table: after the Series A the two common directors still hold a majority. After the Series B neither side controls alone. The independent director becomes the swing vote. That is why founders spend so much effort on who the independent will be and who gets to approve the choice.
Board votes are only part of the picture. Protective provisions in the charter let preferred stockholders block certain actions, such as a sale or a new senior series, no matter how the board votes. Our term sheet basics explain those provisions.
Where board seats are written down
In a priced round built on the NVCA model documents, board seats usually come from the Voting Agreement. It says which group designates each director and commits the stockholders to vote for those designees. NVCA lists its model Voting Agreement as updated June 2026 on the NVCA model legal documents page. The charter may also give a series of preferred stock the right to elect a set number of directors.
Two other NVCA forms often come up. The model Indemnification Agreement covers directors' legal costs. The model Management Rights Letter gives certain funds access to management. NVCA lists both as updated July 2020. Directors also expect the company to buy directors and officers insurance. Our startup insurance guide explains D&O coverage.
Board observers
An observer sits in on board meetings and gets the board deck but has no vote. Seed investors, smaller investors in a priced round and corporate investors often ask for observer seats. Our corporate venture capital guide explains why founders handle strategic investors with extra care.
Common observer terms include:
- A confidentiality obligation equal to what directors owe.
- The company's right to exclude the observer from privileged legal discussions.
- Exclusion when the observer's firm has a conflict, such as an investment in a competitor.
- Loss of the right if the investor's holdings fall below a set level.
Observers usually have no fiduciary duties, but they still see sensitive information. Federal antitrust law, in Section 8 of the Clayton Act, restricts the same person from serving as a director or officer of competing companies. Lawyers often review observer seats for similar concerns when investors back companies in overlapping markets.
California corporate basics
Most venture-backed Palo Alto startups are Delaware corporations registered to do business in California. Our incorporating guide explains why. A few California rules still matter.
Board size
Delaware's General Corporation Law lets a board consist of one or more members. California's Corporations Code Section 212 requires at least three directors for a California corporation, with exceptions: one or two before shares are issued, one or two while there is only one shareholder and two while there are only two shareholders.
Section 2115
California Corporations Code Section 2115 reaches certain companies incorporated in other states. It applies when the average of a company's property, payroll and sales factors in California is more than 50 percent and more than half of its outstanding voting securities are held of record by people with California addresses. Companies listed on the NYSE, NYSE American or the main Nasdaq markets are exempt. When it applies, California rules govern topics such as annual election of directors, removal of directors without cause, cumulative voting and shareholder inspection rights.
Courts have pushed back. In VantagePoint Venture Partners v. Examen in 2005, the Delaware Supreme Court held that a Delaware corporation's voting rights are governed by Delaware law. A California appeals court in 2012 noted the same internal affairs principle in passing. Many lawyers still advise complying with Section 2115 where it is practical, so ask yours.
Board diversity laws
California passed board diversity requirements in 2018 and 2020. They applied only to publicly held corporations. California courts held both unconstitutional in 2022 rulings. They do not apply to private startups.
What Palo Alto founders typically ask
When should we add an independent director?
Often at the Series B or when the board grows to five. Look for someone with operating experience your team lacks. Agree in the term sheet on who nominates the independent and who must approve the choice.
Can the board fire the founder CEO?
Yes. A majority of the board can remove officers, including a founder CEO. Founders who keep a common majority on the board keep that decision in their hands. Count seats carefully at every round.
How often should the board meet?
Many venture-backed startups meet every six to eight weeks or quarterly, with written consents for routine approvals between meetings. Under both Delaware and California law, a board can act without a meeting by unanimous written consent.
Where do Peninsula boards meet?
Many meet at the company's office or at the lead investor's office. Our guide to Sand Hill Road covers the area where many firms are based.
Good to know
- Keep minutes and signed consents for every board action. Investors will review them in due diligence.
- Board seats are hard to take back. Give them out slowly.
- For local counsel, see our startup law firms guide.
Frequently asked questions
How many board seats does a Series A investor usually get?
A common pattern is one seat for the lead Series A investor on a three-person board, with two seats for the founders or common stockholders. Some boards add an independent director instead. The exact structure is negotiated in the term sheet and written into the voting agreement and charter.
What is a board observer?
A board observer attends board meetings and receives board materials but has no vote. Observer rights are usually granted in a letter or in the investors' rights agreement. Observers normally sign confidentiality terms and can be excluded from sessions involving privileged legal advice or conflicts of interest.
Does a Delaware startup based in Palo Alto have to follow California corporate law?
Mostly it follows Delaware law on internal affairs. But California Corporations Code Section 2115 tries to apply certain California rules, such as cumulative voting, to non-listed out-of-state companies with most of their business and voting shareholders in California. Delaware's Supreme Court rejected that reach in a 2005 case, so ask counsel how your company handles it.
How many directors must a California corporation have?
Section 212 of the California Corporations Code sets a minimum of three directors. It allows one director before shares are issued or while there is only one shareholder. It allows two directors while there are only two shareholders. Delaware allows a board of one or more members.
Do startup board members get paid?
Investor directors usually do not receive extra pay because they represent their fund. Independent directors at startups are commonly compensated with stock options that vest over time. Some companies also reimburse travel and buy directors and officers insurance.