It’s not what percentage of the company you own, it’s whether or not you have Control Rights.

Contrary to popular belief, owning 51% of a startup will rarely give you control of it. Startups are controlled by a series of provisions called “Control Rights” that determine what key decisions can be made without a voting majority.

These Control Rights commonly govern big decisions like:

• Authorizing Shares. Unless the Board approves, the Founder can’t just keep issuing more shares that dilute existing investors.
• Selling the Company. The company cannot be sold or liquidated without Board approval.
• Key Hires. Executives beyond a certain pay threshold require Board approval regardless of who the Founder wants to hire.

These are some of the more common control rights although there will be quite a few more that feel a bit less onerous.

When an investor joins the company, they will insist in most cases that a voting board is elected of an odd number of people (to break a vote tie). That will typically be comprised of the Founder(s), Investors and an “independent member” who represents both sides.

All of the provisions that require Control Rights will be spelled out in the Operating Agreement that will govern the company as a whole. Even a 10% shareholder can wield just as much power in making major decisions if they have enough Board seats (votes) with the proper Control Rights.