Consent rights operate as a targeted control mechanism: they do not confer day‑to‑day management authority, but they do prevent the company from undertaking certain high‑impact actions without investor approval. This creates a balanced governance structure, allowing management and the board to run the business operationally, while ensuring strategic decisions cannot bypass the investor group.
Purpose and nature of consent rights
Unlike general voting rights, consent rights are usually bespoke to a particular class of preferred or series‑specific shares. They may be embedded within the articles of association, the shareholders’ agreement (which is most commonly the case), or both. Their primary purposes are to:
- Protect the investor from actions that could dilute their shareholding or alter the capital structure.
- Ensure alignment on key strategic matters such as exits, major acquisitions, or shifts in business direction.
- Provide a safeguard where the investor does not have a board seat and therefore lacks influence over internal governance decisions.
Consent rights may apply at the class level (e.g., approval from a majority of Series A shareholders) or be granted to specific investors, particularly in early‑stage or highly negotiated rounds.
Consent rights vs traditional voting rights
Voting rights apply broadly and are exercised at formal meetings, often requiring high thresholds to pass resolutions. By contrast, consent rights target specific actions and typically operate by written approval, functioning as a veto. This gives investors more reliable and practical influence over decisions that could materially affect their position.
Categories of investor consent
There are three common structures:
- Investor Majority Consent – where a defined majority (often 50–75%) of a share class must approve specified actions.
- Investor Director Consent – where certain matters require approval from a director appointed by the investor group, enabling faster board-level engagement.
- Individual or Unanimous Consent – used where a lead investor or cornerstone backer requires elevated protection, giving them a personal veto over certain matters.
Typical matters requiring consent
Investors often require approval for actions that could materially affect their position. These typically include changes to the capital structure, such as creating new share classes, issuing further securities, or amending existing share rights. They also normally expect consent before the company undertakes major strategic events like mergers, acquisitions, significant disposals, stock exchange listings, a winding up or a liquidation. In addition, investor approval is usually needed for borrowing beyond agreed limits or for capital expenditure that exceeds the authorised budget. Finally, amendments to constitutional documents, the appointment or removal of senior executives, or any material change to the business plan or risk profile will generally require investor sign‑off to ensure alignment and protect their economic interests.
Jurisdictional considerations
Some jurisdictions limit which decisions can be removed from the board’s complete authority. In these cases, investor protection may be achieved through requirements for investor‑appointed directors to approve certain board decisions.
Supporting undertakings
Consent rights are commonly supported by additional undertakings, like obligations to maintain key types of insurance, protect intellectual property, provide regular financial reporting and apply amounts invested in accordance with the business plan, reinforcing the protective framework.
Conclusion
As venture capital markets evolve, well‑structured consent frameworks remain vital. They bridge the gap between minority ownership and meaningful protection, ensuring investors can influence pivotal decisions while allowing companies to remain agile and growth focused.
Article authored by Dhruv Chhatralia BEM, Andrea Tarazi and Kirsty Wright.
