Document type: Toolkit Practice area: Corporate — Corporate Governance Jurisdiction: Delaware framework, adaptable Last reviewed: 5 September 2026

Tool 1 — Class provisions

Section 4.1 Authorized Capital. The Corporation is authorized to issue [] shares of Class A Common Stock, [] shares of Class B Common Stock, [] shares of Class C Common Stock, and [] shares of Preferred Stock.

Section 4.2 Voting. Except as otherwise required by law or this Certificate, holders of Class A Common Stock are entitled to one (1) vote per share, holders of Class B Common Stock are entitled to ten (10) votes per share, and holders of Class C Common Stock have no voting rights. Except as required by law or Section 4.7, all classes vote together as a single class.

Section 4.3 Identical Rights. Except for voting and conversion, the Class A, Class B, and Class C Common Stock have identical rights, powers, and preferences, and shall be treated identically with respect to dividends, distributions, subdivisions, combinations, and reclassifications.

Section 4.4 Equal Consideration. In any merger, consolidation, or other business combination, holders of each class shall receive consideration that is identical in form and amount per share, except that securities received may differ solely with respect to voting rights to the extent the differences are no greater than those between the classes immediately prior.

Annotations.

  • Section 4.3 is essential and frequently thin. Without an express identical-rights provision, disputes arise over whether a dividend or a stock split may be applied differently across classes.
  • Section 4.4 is the provision that prevents the worst fiduciary problem. A charter permitting the high-vote class to receive greater consideration in a sale creates an unresolvable conflict at exactly the moment the controller is deciding whether to sell. Investors should insist on it; issuers should not resist it.
  • The Class C exists so that equity issued for compensation and acquisitions does not dilute the founder's voting percentage. Investors should understand this before pricing the offering.

Tool 2 — Conversion and transfer restrictions

Section 4.5 Optional Conversion. Each share of Class B Common Stock is convertible, at the option of the holder, into one share of Class A Common Stock at any time. Such conversion is irrevocable.

Section 4.6 Automatic Conversion on Transfer. Each share of Class B Common Stock shall convert automatically into one share of Class A Common Stock upon any Transfer, other than a Permitted Transfer.

"Transfer" means any sale, assignment, gift, hypothecation, pledge, encumbrance, or other transfer or disposition, whether or not for value, and whether voluntary, involuntary, or by operation of law, including (i) the transfer of any economic or voting interest, (ii) the transfer of beneficial ownership, and (iii) entry into any voting trust, proxy (other than a revocable proxy for a single meeting), or voting agreement with respect to such shares.

"Permitted Transfer" means a Transfer: (a) to a Family Member of the holder; (b) to a trust of which the holder or a Family Member is a beneficiary, provided that the holder retains sole or shared voting and investment power over the shares; (c) to a Permitted Entity, being an entity of which the holder holds sole or shared voting and investment power over the shares; (d) by will or the laws of intestacy, subject to Section 4.8(d); (e) to a charitable organization, provided the holder retains voting power; or (f) to the Corporation.

A Transfer to a Permitted Transferee that later ceases to qualify shall be deemed a Transfer at that time.

Annotations.

  • The "Transfer" definition must reach voting arrangements, or a founder can transfer economic ownership while retaining votes through a proxy, defeating the structure's premise.
  • Clauses (b), (c), and (e) turn on retained voting power, which is the right test. A transfer that moves the shares but keeps the votes with the founder does not change control; one that moves the votes does.
  • The final sentence closes the loophole where a permitted transferee later stops qualifying — a trust whose terms change, an entity the holder ceases to control.
  • Fund distributions. Decide explicitly whether a pro rata distribution by a venture fund to its partners is permitted. Usually it should not be, since it would scatter high-vote shares among passive holders. Model the effect on the founder's percentage before deciding.

Tool 3 — Sunset provisions

Section 4.8 Automatic Conversion of All Class B. All outstanding shares of Class B Common Stock shall convert automatically into Class A Common Stock, on a one-for-one basis, upon the earliest to occur of:

(a) Time. The tenth anniversary of the Effective Date, unless prior to such date the holders of a majority of the outstanding Class A Common Stock, voting as a separate class and excluding shares held by Founders and their Affiliates, approve an extension for an additional period not exceeding [five] years;

(b) Ownership. The date on which the Founders and their Permitted Transferees collectively beneficially own less than [10]% of the aggregate number of outstanding shares of Class A, Class B, and Class C Common Stock;

(c) Departure. The date [twelve (12) months] after the Founder ceases to serve as an Executive Officer or director of the Corporation;

(d) Death or Incapacity. The date [twelve (12) months] after the death or Incapacity of the Founder; and

(e) Election. The date on which holders of a majority of the outstanding Class B Common Stock elect conversion.

Annotations.

  • Clause (a)'s separate class vote is the provision that makes the sunset real. An extension approved by all classes voting together is approved by the founder, which is not a sunset.
  • Clause (b)'s denominator matters. Measuring against the original holdings produces a different result from measuring against outstanding shares, and the difference compounds as the company issues equity. Model both.
  • Clause (c) requires "Executive Officer" to be defined. See the definitions annex; this is the ambiguity most likely to be litigated.
  • Clauses (c) and (d) need transition periods. A cliff conversion on the day a founder dies is operationally chaotic and unfair to an estate.
  • Consider a stepped alternative: ten votes to three votes on the first trigger, three to one on the second. Softer, and easier to negotiate.

Tool 4 — Definitions annex (the terms that decide disputes)

"Executive Officer." Three drafting options, in descending order of certainty:

  1. "an 'executive officer' of the Corporation as identified in the Corporation's most recent annual report" — objective, publicly verifiable, and updates automatically;
  2. "an officer subject to Section 16 of the Securities Exchange Act of 1934" — objective and tied to an existing determination the company already makes;
  3. "the Chief Executive Officer, Executive Chair, President, or any other officer designated as an executive officer by the Board" — enumerated, but requires maintenance.

Never leave it undefined. A founder who moves from Chief Executive to Executive Chair should not create an existential interpretive question.

"Incapacity." "the Founder's inability, by reason of physical or mental illness or injury, to perform the material duties of an Executive Officer for a period of [180] consecutive days or [270] days in any twelve-month period, as determined by a majority of the independent directors, acting in good faith and on the advice of a licensed physician selected by them."

Specify who determines, on what evidence, and over what period. Leaving determination to the founder's own physician, or to the board including the founder, defeats the provision.

"Family Member." Enumerate: spouse or domestic partner; lineal descendants and ancestors; siblings; and spouses of any of them; and, if intended, adopted persons on the same terms. Decide deliberately how far this extends — a broad definition permits control to pass to a second generation without triggering the death sunset.

"Founder." Name the individuals. Do not define by role.

"Affiliate." Use a defined term consistent with the rest of the charter, and confirm it captures family entities and foundations.

Tool 5 — Conflicts committee charter

1. Purpose. The Conflicts Committee assists the Board in reviewing and approving transactions and arrangements in which the Controlling Stockholder or its Affiliates have an interest.

2. Composition. Not fewer than three directors, each of whom the Board has determined is independent of the Controlling Stockholder, its Affiliates, and management, applying a substantive standard and not merely applicable listing standards. Independence is reassessed annually and upon any matter presented.

3. Jurisdiction. (a) any transaction between the Corporation and the Controlling Stockholder or its Affiliates involving more than $[] individually or $[] in the aggregate in any fiscal year; (b) any compensation arrangement with the Controlling Stockholder; (c) any transaction in which the Controlling Stockholder has an interest that differs from that of the other stockholders; (d) any corporate opportunity matter; and (e) any matter referred by the Board.

4. Authority. The Committee may review, evaluate, negotiate, approve, or reject any matter within its jurisdiction, and may retain independent legal, financial, and other advisors at the Corporation's expense, on terms it determines, without further approval.

5. Board Limitation. The Board shall not approve any matter within the Committee's jurisdiction without the Committee's prior favorable recommendation.

6. Meetings. Not less than quarterly, whether or not any matter is pending. The Committee shall meet in executive session at each meeting.

7. Reporting. To the Board following each meeting, and in the Corporation's annual proxy statement.

Annotation. Paragraph 5 is what makes the committee real. Without it, the committee is advisory and can be bypassed.

Tool 6 — MFW condition language for a controller transaction

[In the Controlling Stockholder's initial written proposal, before any economic negotiation:]

Any transaction will be subject to, and we will not proceed with any transaction absent, each of the following, neither of which will be waivable by us:

(a) the review, negotiation, and approval of the transaction by the Conflicts Committee, consisting solely of directors independent of us, which Committee shall be empowered to retain its own legal and financial advisors at the Corporation's expense, to negotiate the terms, and to reject this proposal or any revised proposal definitively; and

(b) the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock not owned by us, our Affiliates, or any officer or director of the Corporation, voting as a separate class.

We have set no deadline and impose no time limit on the Committee's deliberations.

Annotations.

  • Deliver this before any price is discussed. The framework's timing requirement is what fails in practice.
  • Non-waivability must be stated, and the merger agreement's conditions should be drafted as non-waivable so that waiver is not available even by agreement.
  • The separate class vote of the low-vote shares is the concession that earns deferential review. It is real, and a controller unwilling to give it should expect entire fairness.
  • Confirm the excluded population and the tabulation method with the transfer agent before filing the proxy.

Tool 7 — Related-party transaction policy

Scope. This policy applies to any transaction, arrangement, or relationship between the Corporation and (i) the Controlling Stockholder, (ii) any Affiliate of the Controlling Stockholder, (iii) any Family Member of the Controlling Stockholder, or (iv) any entity in which any of the foregoing has a material interest.

Threshold. Any such transaction involving more than $[] individually, or more than $[] in the aggregate with the same counterparty in any fiscal year, requires prior approval of the Conflicts Committee.

Standard. The Committee shall approve a transaction only if it determines the terms are no less favorable to the Corporation than could be obtained from an unaffiliated third party, applying a methodology of competitive quotes, third-party benchmarking, or documented cost plus a stated margin.

Benchmarking. Each recurring arrangement shall be benchmarked by an independent party not less than every [two] years, and the results reported to the Committee.

Annual review. The Committee shall review every recurring arrangement annually and determine whether to continue, renegotiate, or terminate it.

Termination rights. Each arrangement shall be terminable by the Corporation on not more than [90] days' notice without penalty.

Schedule. Management shall maintain a schedule of all covered arrangements, recording counterparty, relationship, term, annual value in each direction, pricing methodology, date last benchmarked, and approval basis, and shall provide it to the Committee quarterly.

Annotation. The benchmarking obligation runs in both directions. A below-market arrangement with an affiliate is not a benefit to be accepted quietly; it creates dependency and is characterized in litigation as evidence the relationship was never arm's-length.

Tool 8 — Pre-transfer review procedure

Procedure for Transfers of Class B Common Stock

  1. No transfer of Class B Common Stock shall be effected without prior written confirmation from the Corporation that the transfer constitutes a Permitted Transfer.
  2. The proposed transferor shall submit to the General Counsel, not less than fifteen (15) business days before the proposed transfer: the identity of the transferee; the relationship of the transferee to the transferor; the number of shares; the form of the transfer; and, for a transfer to a trust or entity, the governing documents evidencing who holds voting and investment power.
  3. The General Counsel shall review the proposed transfer against the Permitted Transfer definition and deliver a written determination.
  4. The transfer agent has been instructed to record a transfer of Class B Common Stock only upon receipt of such written determination, and otherwise to record the automatic conversion of the transferred shares into Class A Common Stock.
  5. The Corporation shall maintain a log of all determinations.

Annotation. Step 4 is the operative one. Without an instruction to the transfer agent, the agent applies its own reading of the charter, or applies none — and an unintended conversion of high-vote shares is irreversible.

Tool 9 — Disinterested vote reporting

[For the current report disclosing annual meeting results, or an investor communication:]

Voting results excluding shares held by the Controlling Stockholder and its Affiliates. In addition to the results reported above, the Corporation is providing the following information regarding the votes cast by holders other than the Controlling Stockholder and its Affiliates:

Proposal For Against Abstain % of disinterested votes cast "For"
Election of [Director]
Ratification of auditors
Advisory vote on executive compensation

Annotation. Very few controlled companies do this. Those that do signal that they are listening to the constituency whose votes cannot change outcomes, and they receive credit disproportionate to the effort. It also gives the board real information: a director supported by 30% of disinterested shares is receiving a message that the aggregate total conceals.

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