Affirmative voting rights: the investor veto list in Indian startups

Affirmative voting rights give an investor the power to say yes or no to a defined list of company decisions. The company cannot go ahead without the investor's consent. The right is a veto on named matters, not control over every decision, and it can sit with an investor who holds only a small share.

The aim is protection. A minority investor cannot out-vote the founders, but the veto list stops steps that could hurt its investment, such as issuing shares at a low price or selling the business. The same idea appears in termsheets as protective provisions.

The live case: in November 2026 the Delhi High Court backed BharatPe's veto over a proposed rise in Unity Small Finance Bank's share capital, keeping in place an order that stops a board vote without its written consent.

The list differs by deal and by investor strength. A seed investor may hold two or three vetoes, while a later-stage fund or a strategic investor may hold a long schedule. The items below appear often in Indian shareholders' agreements.

Investors rarely ask for everything. Early-stage terms are lean because founders resist a long list, while a late-stage investor putting in a large cheque or a strategic buyer such as a bank partner can ask for a wide schedule and usually gets more of it.

• Issuing new shares or any change to share capital, including raising authorised capital.
• Changing the Memorandum or Articles of Association.
• Selling the company, merging it or selling most of its assets.
• Taking on debt above a set amount.
• Paying dividends or buying back shares.
• Hiring or firing the CEO or top managers, and changing their pay.
• Approving the annual budget or business plan.
• Deals with related parties, such as the founders' other businesses.
• Starting an IPO or choosing the stock exchange.

They usually appear in two places. The shareholders' agreement is a contract between the investors, the founders and the company. The Articles of Association are the company's own rulebook, filed with the Registrar of Companies.

The difference matters. Section 10 of the Companies Act 2013 makes registered Articles bind the company and its members as if each had signed them. A right sitting only in the shareholders' agreement binds the people who signed, but may not bind the company. Lawyers therefore copy the veto list into the Articles. Section 5 describes what Articles contain and section 14 lets a company change them with a special resolution, so a right that is in the Articles cannot be removed without the votes to do so.

Yes, with conditions. Courts have enforced consent rights that are written into the Articles and the agreement. The Delhi High Court in World Phone India v WPI Group (2013) held that a clause in a shareholders' agreement that is not also in the Articles does not bind the company, even if it does not conflict with the Companies Act. That ruling is why careful investors insist on both.

The BharatPe dispute shows the other side. The Delhi High Court treated a proposed rise in authorised capital as a reserved matter under the agreement, and said the bank's own board agenda had described it that way. It dismissed the bank's appeal and left the restraint in place. The report says BharatPe feared its 49% holding would fall to about 21% if the capital increase went ahead.

Remedies differ. If a consent right is breached, the investor can seek an injunction to stop the step, as BharatPe did, or damages for breach of contract. Courts decide each case on its own wording, so the exact clause matters more than the label.

A board seat gives an investor a voice and a vote inside the board room. An affirmative right gives a veto that works even when the board has already voted. A fund with one seat out of five can be outvoted on the board, yet still hold a consent right over an acquisition that the board wants to approve.

Control in a startup is therefore often shared. Founders run the business day to day, the board sets direction and the investors hold vetoes on a short list of big steps. The more vetoes a company has to clear, the slower it moves.

The two also differ in who holds them. Board seats belong to people, and directors owe duties to the company. A consent right belongs to the investor as a shareholder, which means the investor can act in its own interest when it uses it, within the limits of the agreement.

Founders worry that a long list lets an investor block the operations. A veto over the annual budget, for example, can hold up hiring. Investors worry that without the list, the founders can dilute them or sell the company at a price that suits only the founders.

Common compromises include thresholds, such as a veto only on debt above a stated amount, and a sunset, where vetoes fall away after an IPO or once the investor's holding drops below a set percentage. Some vetoes need only a majority of the preference shareholders, rather than every investor, so a small holder cannot block a deal alone.

A practical test for founders is whether a veto touches the daily running of the business. A veto on selling the company is easy to defend. A veto on small hires or routine contracts slows the team, and founders can often trade it for a monetary threshold. Investors, for their part, should know that a veto they never use in a crisis may be worth less than a seat on the board that brings them the information early. Both sides should also agree what happens in a deadlock, such as a mediation step, so that a refusal does not freeze the company for months. A clear process for asking for consent, with a time limit for the reply, also avoids needless delays and disputes.

A story about an investor blocking a deal, challenging a board meeting or going to court usually involves a reserved matter. Check which step is covered, whether the right is in the Articles, and whether the company is private or listed, since listed companies face extra rules on special shareholder rights.

The examples above are general. Every agreement has its own wording. This guide explains the idea and is not legal advice, so check with a lawyer before signing or enforcing any clause.