Consent Rights
Consent Rights are contractual approval rights that require a company to obtain a specified investor’s or stockholder group’s consent before taking enumerated corporate actions.
How it works
Consent Rights can cover acquisitions, asset sales, new debt, equity issuances, budgets, related-party transactions, executive changes or amendments to governing documents. The exact actions, dollar thresholds and ownership conditions are negotiated. For Delaware corporations, current Section 122(18) expressly permits certain stockholder contracts requiring approval or consent before specified corporate actions, subject to statutory limitations and the certificate of incorporation.
The right is transaction-specific
The agreement lists the corporate actions that require approval rather than creating a general veto over every company decision.
Ownership thresholds often limit the right
Consent Rights can step down or terminate when the investor’s ownership falls below agreed percentages.
Thresholds can narrow routine interference
Dollar, leverage or materiality thresholds can preserve ordinary-course management authority while reserving major decisions.
Delaware law recognizes specified consent contracts
Section 122(18) permits certain contractual approval requirements with stockholders while retaining statutory and charter-based limits.
Worked example: acquisition approval
Management wants to acquire a business for $120 million. The Stockholders Agreement requires investor consent for acquisitions above $100 million, so the designated holder’s approval is contractually required.
Why the right can affect valuation
A blocking right over major financings or transactions can create meaningful governance influence even when the holder owns less than 50%.
Common mistakes
Treating Consent Rights as majority stock ownership; assuming the investor can veto unlisted actions; confusing contractual consent with preferred Protective Provisions; and ignoring ownership-based sunset terms.
Example
A 30% post-emergence shareholder receives Consent Rights over acquisitions above $75 million, debt incurrence above an agreed leverage threshold and issuance of senior or pari passu equity while it maintains at least 20% ownership.
Example
A 30% post-emergence shareholder receives Consent Rights over acquisitions above $75 million, debt incurrence above an agreed leverage threshold and issuance of senior or pari passu equity while it maintains at least 20% ownership.
Professional note
Consent Rights can create substantial influence without majority voting control. Their economic significance depends on the breadth of covered actions, thresholds, duration, exceptions and the consequences of withholding consent.
Related terms
- Voting Rights
Voting rights are shareholder rights to vote on specified corporate matters, commonly including director elections and other proposals.
- Board Designation Rights
Board Designation Rights are contractual or security-based governance rights allowing an investor or investor group to designate, nominate or require appointment of one or more directors, usually while specified ownership or other conditions remain satisfied.
- Investor Rights Agreement
An Investor Rights Agreement is a contract between a company and one or more investors that grants specified governance, information, participation, registration or other rights beyond the ordinary rights attached to the investor’s securities.
- Stockholders Agreement
A Stockholders Agreement is a contract among stockholders, or among stockholders and the company, that governs specified ownership, voting, governance, transfer, consent or exit rights relating to the company’s shares.
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