What Approvals Are Required to Sell Your Startup — And How to Secure Them

For many founders, the decision to sell a startup is both strategic and deeply personal. But even if you’re the visionary behind the company, you may not have the unilateral authority to complete a sale. Depending on your corporate structure, investor agreements, and cap table, you may need formal approval from your board of directors, shareholders, or both.

Understanding these governance requirements early in the M&A process is critical. Missteps here can delay — or even derail — a deal. In this article, we’ll break down the typical consents required to sell a startup, how to prepare for them, and what founders should do to align stakeholders before entering serious negotiations.

Why Approvals Matter in a Startup Sale

At its core, selling a company is a transfer of control — and control is governed by your corporate documents. Whether you’re executing an asset sale or a stock sale, the transaction will likely require formal consent from key decision-makers. These approvals are not just legal formalities; they are enforceable rights that protect investors, co-founders, and other stakeholders.

Failing to obtain the necessary consents can result in breach of fiduciary duty, litigation, or a failed closing. Buyers — especially institutional acquirers or private equity firms — will insist on clear evidence that all required approvals have been obtained before wiring funds.

Key Approvals Typically Required

1. Board of Directors Approval

Most startup sales require approval from the board of directors. This is typically a majority vote, but your company’s bylaws or investor agreements may require a supermajority or unanimous consent for major transactions.

The board’s role is to act in the best interest of the company and its shareholders. That includes evaluating the fairness of the deal, the strategic rationale, and any potential conflicts of interest. In many cases, the board will also authorize the CEO or another officer to negotiate and execute the transaction documents.

2. Shareholder Approval

In addition to board consent, many deals require approval from the company’s shareholders — particularly in a stock sale or merger. The threshold for approval depends on your corporate structure and governing documents:

• Delaware C-Corp: Under Delaware law, a merger or sale of substantially all assets typically requires approval from a majority of outstanding voting shares.
• Preferred Shareholders: If you’ve raised venture capital, your investors likely have protective provisions that give them veto rights over a sale. These may require a separate class vote of preferred shareholders, often with a supermajority threshold (e.g., 66⅔%).
• Drag-Along Rights: Some companies include drag-along provisions in their stockholder agreements, allowing a majority of shareholders to force minority holders to approve a sale. These provisions can streamline the process — but only if properly structured and enforceable.

3. Investor Consents and Protective Provisions

Beyond general shareholder votes, your investors may have specific contractual rights that require their consent. These can include:

• Right to approve any change of control
• Right of first refusal or co-sale rights
• Liquidation preference enforcement

These rights are typically found in your company’s Investor Rights Agreement, Voting Agreement, or Certificate of Incorporation. A careful review of these documents is essential before entering into a Letter of Intent (LOI).

How to Line Up Approvals Strategically

Securing approvals is not just a legal exercise — it’s a political and strategic one. Here’s how to approach it:

1. Start with a Cap Table and Governance Review

Before engaging buyers, conduct a thorough review of your cap table, charter documents, and investor agreements. Identify:

• Who holds voting control?
• What approval thresholds apply?
• Which investors have veto rights?

Firms like iMerge often begin engagements with this type of governance audit to avoid surprises later in the process.

2. Engage Key Stakeholders Early

Once you’re seriously considering a sale, begin informal conversations with your board and major investors. Gauge their appetite for an exit, and understand their expectations around valuation, timing, and deal structure.

In our experience advising software founders, early alignment with your board and lead investors can dramatically reduce friction during diligence and closing. It also helps you shape a deal that meets the needs of all parties — not just the founder.

3. Use the LOI as a Catalyst for Formal Approvals

While you don’t need full board or shareholder approval to sign a non-binding LOI, it’s wise to secure at least board-level support before doing so. Once the LOI is signed, you’ll typically seek formal approvals during the definitive agreement phase.

At this stage, your M&A advisor and legal counsel will help prepare board resolutions, shareholder consents, and any required notices. If drag-along rights are in play, you’ll also need to ensure proper execution of joinder agreements or waivers.

4. Anticipate and Address Objections

Not all stakeholders will be aligned. Some may want to hold out for a higher valuation, while others may have concerns about tax treatment or post-sale roles. Address these concerns proactively:

• Provide clear rationale for the sale
• Share valuation benchmarks and comps (see: Valuation Multiples for Software Companies)
• Offer retention packages or earn-outs where appropriate

In some cases, it may be necessary to renegotiate investor rights or offer side agreements to secure consent. This is where experienced M&A advisors can add significant value.

Case Example: Navigating a Complex Cap Table

Consider a hypothetical SaaS company with $10M ARR, backed by two venture funds and several angel investors. The founder receives a $60M acquisition offer from a strategic buyer. The board is supportive, but one VC — holding 25% of preferred shares — is pushing for a higher price.

Upon review, the company’s charter requires 66⅔% of preferred shares to approve a sale. The founder, working with an M&A advisor like iMerge, negotiates a modest earn-out and retention package that aligns the VC’s interests with the buyer’s growth plan. With that, the VC consents, and the deal proceeds to closing.

This scenario underscores the importance of understanding not just who owns what — but what rights they hold and how to align them.

Final Thoughts

Securing board and shareholder approvals is a critical — and often underestimated — part of the M&A process. Founders who prepare early, understand their governance landscape, and engage stakeholders with transparency are far more likely to close successfully and on favorable terms.

Whether you’re exploring a full exit or a partial recapitalization, aligning your board and investors is not just a checkbox — it’s a strategic imperative.

Use this insight in your next board discussion or strategic planning session. When you’re ready, iMerge is available for private, advisor-level conversations.