Board seats and protective provisions

The economic terms of a round decide how money is split. The control terms decide who makes decisions along the way: who sits on the board, which actions need investor approval, and whether investors can force or block a sale. Founders sometimes negotiate valuation hard and accept control terms as boilerplate; the control terms are usually harder to change later.

The board of directors

In a U.S. corporation the board manages the company's business: it approves budgets, option grants, financings and a sale, and it hires and can fire the CEO. Under Delaware law, directors are elected by the stockholders, but in venture-backed companies a voting agreement signed with the round fixes who designates each seat.

Stage	Common composition	Notes
Pre-seed / SAFE rounds	Founders only	SAFEs carry no board rights.
Priced seed	2 founders + 1 investor, or founders only	Some seed leads take an observer seat instead.
Series A	2 common + 1 Series A, or 2 common + 1 Series A + 1 independent	Common seats are often defined as "the CEO" plus one elected by common holders.

The arithmetic that matters is who has a majority, and how that changes as later rounds add investor seats. A three-person board with two founder seats is founder-controlled; five seats with two investors, two founders and an independent makes the independent decisive. Observers attend meetings but do not vote; their rights (and confidentiality duties) are usually in a side letter or the investors' rights agreement.

Protective provisions (investor vetoes)

Protective provisions are actions the company cannot take without the approval of a majority (sometimes a supermajority) of the preferred, regardless of the board's view. They are written into the charter. The NVCA model lists the usual set, which includes:

changing the charter or bylaws in a way that affects the preferred;
creating a new class or series of stock senior to or on par with the existing preferred;
increasing or decreasing the authorized shares;
redeeming or repurchasing shares, or paying dividends (with routine exceptions);
selling or liquidating the company, or merging;
changing the size of the board;
borrowing above a threshold.

These are broadly standard. Watch for longer lists that reach into operations (budgets, hiring, specific contracts), separate vetoes for each series (which give a small series a blocking position), and supermajority thresholds that hand one investor a veto alone.

Drag-along and sale mechanics

A drag-along in the voting agreement requires all stockholders to vote for, and join, a sale approved by specified holders (often the board plus a majority of the preferred and sometimes of the common). It prevents small holders from blocking a sale, but its trigger defines who can force one. Check: who must approve; minimum price or protections for common holders; and limits on what dragged holders must give (representations, indemnities, non-competes).

Information rights

Major investors usually receive annual and quarterly financial statements and an annual budget, and may have inspection rights. Reasonable rights are useful discipline; monthly reporting obligations and audited statements at an early stage can be costly. Make sure confidentiality obligations cover competitors' investors.

Other control terms

Right of first refusal and co-sale: If a founder wants to sell shares, the company and then investors may buy them first (ROFR), or sell alongside (co-sale). They restrict secondary sales and are usually in a separate agreement.
Redemption rights: Investors' right to require the company to buy back their shares after some years. Uncommon in U.S. early-stage deals and potentially dangerous for a company without cash.
No-shop: One of the few binding term-sheet clauses: the company agrees not to solicit other offers for a period while the deal is papered.
Pay-to-play: Investors who do not participate in a later round lose some preferred rights or are converted to common. More common in downturns.

Checklist before you sign

Draw the board after this round and after the next one: who has a majority each time?
List every protective provision and ask what decision each one could block.
Check the drag-along trigger and the protections for common holders.
Read the information-rights obligations as a monthly workload.
Know which terms are in the charter (hard to change: needs a stockholder vote) and which are in contracts.

Sources

Model Legal Documents (term sheet, certificate of incorporation, investors' rights, voting and ROFR/co-sale agreements), National Venture Capital Association. Cited for structure; not reproduced.
Delaware General Corporation Law, Title 8, Chapter 1, State of Delaware. Cited for facts.