Supermajority Vote
A supermajority vote is an approval requirement set higher than a simple majority of the relevant voting power, typically 66.67% (two-thirds) or 75% (three-fourths). It applies to outstanding shares, the relevant class of preferred, the board, or other defined voting body, used for corporate matters significant enough that a simple majority is considered insufficient protection against changes affecting minority interests. It is a structural protection that creates higher barriers to action on matters where minority stockholders or specific share classes need elevated consent rights.
The contexts where supermajority votes appear in venture-backed companies:
- Bylaw amendments: many corporate bylaws require supermajority board approval (often 66.67% or 75% of directors) for amendments, preventing simple-majority changes that could disadvantage minorities.
- Specific protective provisions: while most protective provisions require majority preferred consent, some highly impactful matters may require 66.67% or 75% preferred consent (e.g., changes to anti-dilution flavor, complete waivers of preferred rights).
- Stockholder approval for non-statutory matters: matters not covered by statutory voting requirements but governed by the charter may require supermajority stockholder approval (e.g., specific business combination structures).
- Founder-protective bylaws: some founder-friendly bylaws require supermajority approval to remove the CEO or to change the CEO's compensation, providing structural protection for founder roles.
- Drag-along rights: stockholder agreements often include drag-along provisions triggered by approval from a supermajority of preferred or a supermajority of the combined preferred and common (e.g., 66.67% of all outstanding shares).
- Charter amendments adversely affecting a series: typically require approval of a supermajority of that adversely-affected series (often 66.67% or 75% of that series).
Why supermajority matters in venture-backed companies: at simple-majority thresholds, a single dominant investor (or coalition of investors with combined majority) can drive decisions. Supermajority thresholds force broader consensus, protecting smaller stockholders and ensuring decisions have meaningful support. The negotiating reality: investors typically prefer lower thresholds (majority) for protective provisions; founders typically prefer higher thresholds (supermajority) for matters that affect founder positioning. The compromise position is often a tiered structure: simple majority for most matters, supermajority for the most consequential matters.
The Delaware default: under Delaware law, certain corporate actions have statutory default voting thresholds (e.g., merger approvals require majority of outstanding shares unless modified). The charter or bylaws can elevate (but not lower) these thresholds. Supermajority requirements are charter or bylaw provisions modifying the statutory defaults.
Ryan's Take
Supermajority thresholds are the structural protections that matter when a coalition of investors wants to do something the minority doesn't. A simple-majority threshold means whoever has 50% + 1 controls; a 75% threshold means even a strong coalition needs broad consensus. Founders should think about supermajority in two contexts: (1) for protective provisions that matter to them as common holders, push for supermajority thresholds on the most damaging matters; (2) for protective provisions investors are imposing, push for supermajority thresholds to prevent a single dominant investor from acting alone against the company's interests. The 66.67% threshold is the reasonable middle ground for most consequential matters; 75% is appropriate for the most severe matters like complete waivers of preferred rights or fundamental charter changes.
What founders get wrong: Not paying attention to voting thresholds during term-sheet negotiation, then discovering that simple-majority thresholds on key matters allow a dominant investor to drive decisions against founder interests. The right discipline: at every priced round, review the voting thresholds across all consequential matters (protective provisions, drag-along, bylaw amendments, charter amendments), identify where supermajority would protect founder or company interests, and negotiate to elevate those thresholds. The cost of doing this is modest (additional negotiation rounds); the benefit is structural protection that becomes load-bearing later.
Related: Voting Rights · Protective Provisions · Preferred Stock · Bylaws · Articles of Incorporation
FAQ
What is a supermajority vote?
An approval requirement higher than a simple majority (50% + 1) of the relevant voting power, typically 66.67% (two-thirds) or 75% (three-fourths) of outstanding shares, the relevant class of preferred, the board, or other defined voting body. Used for corporate matters significant enough that simple majority is considered insufficient protection.
Where do supermajority votes appear?
Bylaw amendments, certain protective provisions (especially the most consequential), stockholder approval for non-statutory matters, founder-protective bylaws (CEO removal, compensation changes), drag-along triggers, and charter amendments adversely affecting a specific series. Common thresholds are 66.67% and 75%.
Why would I want supermajority thresholds?
Because they force broader consensus on consequential decisions, protecting minority stockholders and preventing a dominant investor (or small coalition) from acting unilaterally against the company's interests. Particularly valuable for matters that affect founders as common holders or that could fundamentally change the company's direction.
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