Should I (cofounder) give up my voting rights?


1

I am a cofounder with shares that have voting rights.

We have 3 founders - One with majority shares (a little more than the other two combined). I come from tech background while other 2 founders are sales people. Company is based out of USA while I live in Argentina & all the developers are from Argentina. I only hold a B1 visa.

We have raised some angel funding giving away less than 10% and pitching for series A. The majority shares founder wants to remove voting rights of mine thereby him alone exercising more than 50% even after series A funding.

His belief is that 1 person holding all the voting rights of founding team is beneficial. What am I losing by giving away my rights? Currently there is nothing proposed in return. Is it fair for him to ask us to give away our existing rights?

Board Co-Founder Equity Compensation

asked Aug 19 '13 at 05:48
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Santu
156 points

2 Answers


3

His belief is that 1 person holding all the voting rights of founding
team is beneficial.

Beneficial for him, for certain.

What am I losing by giving away my rights?

Your rights. Your ability to affect the decisions and the direction of the company in which you own a significant stake.

Currently there is nothing proposed in return. Is it fair for him to
ask us to give away our existing rights?

I don't know. Is it fair for him to ask you to give him something in return for nothing? Fairness is a subjective measure. He thinks it's fair. And beneficial. For him. Is it beneficial for you? Do you think it is fair for you? Only you can answer that.

How many directors do you have on your board? Do you have enough voting power to appoint a director on your behalf? If so - you can appoint him, if you trust him to represent your interests. Or join him and together appoint a director who will represent you both.

answered Aug 19 '13 at 09:42
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Littleadv
5,090 points

1

Professional entrepreneurs and investors will tell you that it is more beneficial for nobody to have the majority votes in the company, when you have more than two shareholders (it's a different question when you have only two shareholders).

Think of things right now. If he wants to make something happen, he needs to persuade one of three people to join him: you, the other founder or the angel. If all three of you oppose him together, do you really think that the decision he has three people opposed to him on will be a smart one? This is a much healthier structure than having one 'dictator'.

In fact, most professional investors will do everything they can in voting documents, etc, to ensure that one person on their own can never decide everything. Majority owners can be driven to take bad decisions from ego. Minority owners will take other people's interests into account, because they have to. If they try to make things happen from ego they will lose!

In general, he cannot take away your voting rights unilaterally. You can choose to give them away (or not). Effectively, what this does is create two classes of shares, one with voting rights and one without voting rights. The shares without voting rights will be worth less than shares with voting rights, so you will lose money (your shares will be worth less) if you agree to this.

answered Aug 20 '13 at 01:38
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Kamal Hassan
1,285 points

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