Nov 4, 2009
How are directors typically elected?
Venture investors insist upon board representation in connection with any investment they make. Typically, the terms of preferred stock provide the preferred stockholders with the right to elect, separately from the holders of common stock, a specified number of directors. These directors are called "preferred stock directors." The holders of common stock also are generally permitted to elect one or more directors, although it is usually the case that the holders of preferred stock will vote with the holders of common stock on an as-converted basis in such elections.
Although directors are, as a technical matter, elected by the stockholders of the company, the composition of the board of directors is largely pre-ordained in accordance with contractual arrangements among the company, the preferred stockholders, and other significant stockholders. This arrangement is called a "voting agreement" A voting agreement will afford specific investors or other stockholders the right to designate individuals for election to the board of directors, and will bind the parties to the voting agreement to vote their shares to elect any such designee.
