Founders’ Rights/Shares

The founders of a company may insert provisions into its corporate governance to protect their interests, usually attached to special shares. These rights may take many forms including veto powers or alternately extra voting weights, e.g., ten times the votes of each ordinary share. Founder’s shares are often heavily criticized, though to be fair, some very successful companies use founder’s shares. Anecdotally, problems typically arise with founder’s shares in the second and later generations of a business, when it is no longer controlled by its founders, or when the founder’s family uses them to place unqualified family members into management, seek to extract excessive benefits from the company, or oppose necessary change.