Another significant area where control could be lost is the composition and mandate of the board.

A board of directors is a group of people selected to represent the interests of the company’s shareholders. It sets management and oversight policies and makes major corporate decisions.

The 2-1 board structure, where two founders and one investor sit together, is an example of a founder-friendly board. Assuming two founders, two investors, and one independent board member is riskier than the more common 2-2-1 structure. To put it simply, if you lose control of the board, you lose control of the company.

Dangerous practices include, but are not limited to, requiring the approval of an investor’s board member before taking any action. This may include things as high-level as approving the annual budget, or as low-level as launching a new business line or market.

Learn how the proposed structure and provisions will affect your company. This is also where investors will put their faith in you and your top executives. The more control an investor seeks to gain via the board, the more they are attempting to prevent the company from being badly managed.