This article is for startup founders and business owners in Ireland who are negotiating investment terms with venture capital or private equity investors.
If you're trying to understand what reserved matters are, why investors demand them, or which decisions you'll need investor approval for after fundraising, this guide explains the key provisions that appear in shareholder agreements, how they protect minority investors, and what veto rights mean for your operational control.
Key Takeaways
Reserved matters give minority investors veto power over critical decisions like share issuances, acquisitions, and business pivots regardless of ownership percentage.
Investors holding just 15% can block actions even with 85% majority support if those actions are designated as reserved matters.
Common reserved matters include issuing new shares, taking on debt above thresholds, hiring/firing executives, and changing the company's main business.
Board-level reserved matters give investor-appointed directors veto power, while shareholder-level reserved matters require approval from specified ownership percentages.
Special reserved matters require 75% supermajority or unanimous approval for existential decisions like liquidation, constitutional amendments, or fundamental business changes.
Laura Ryan is a practising Barrister at the Bar of Ireland. She graduated from the Honourable Society of King’s Inns in 2024, having previously qualified and practised as a Chartered Accountant in a big four accounting firm.
What exactly are reserved matters in a shareholder agreement?
Reserved matters are specific company decisions that require approval from designated shareholders or directors before proceeding, even if a majority would normally approve them. They give minority investors veto power over critical actions like issuing new shares, taking on debt, or changing the business direction. Think of them as a checklist where directors must get investor permission before moving forward, protecting investors who might only hold 15-20% of shares.
Why do investors insist on having reserved matters in shareholder agreements?
Investors require reserved matters to protect the assumptions underlying their investment decisions and prevent majority shareholders from unilaterally changing direction after funding. Without these protections, an investor holding 20% would be powerless to stop the 80% majority from diluting their shares, pivoting the business model, or selling the company at unfavorable terms. Reserved matters create governance balance between founders' operational control and investor protection.
What's the difference between board-level and shareholder-level reserved matters?
Board-level reserved matters give specific investor-appointed directors veto power over operational decisions, even when outnumbered by other directors. Shareholder-level reserved matters require approval from shareholders holding specified ownership percentages (typically 51%+, 66-75%, or unanimous) and apply to fundamental decisions affecting share ownership, capital structure, or company existence. Shareholder reserved matters typically override board decisions on critical issues.
What types of decisions typically require investor approval as reserved matters?
Common reserved matters include issuing new shares beyond approved ESOP pools, creating new share classes, mergers or acquisitions, selling substantial assets (often 10-25% threshold), taking on debt exceeding specified amounts (typically €50,000-€500,000), and hiring or firing C-level executives. They also cover changing the company's main business, winding up the company, and amending the shareholder agreement itself. The specific list depends on negotiation between founders and investors.
How do ordinary and special reserved matters differ?
Ordinary reserved matters require simple majority approval (51%+) from the protected investor class and cover important but not existential decisions like approving annual budgets or moderate debt. Special reserved matters require higher thresholds (75% supermajority or unanimous approval) for fundamental changes like constitutional amendments, liquidation, changing the main business, or significant dilutive share issuances. Higher thresholds recognize these decisions fundamentally alter the original investment.
Can a minority investor really block decisions even if everyone else agrees?
Yes, if a decision is designated as a reserved matter, even an investor holding just 15% can veto it regardless of unanimous support from the other 85%. This veto power exists because the shareholder agreement creates contractual rights beyond company law minimums. Without reserved matters, that 15% investor would have no blocking power since constitutional amendments require 75% and ordinary resolutions need simple majority.
What happens if I raise money for a software business but want to pivot to hardware?
If your shareholder agreement includes reserved matters covering changes to the main business (which most do), you cannot pivot without investor consent. Reserved matters prevent major business changes to ensure the company investors funded remains the company they intended to support. Investors protect their investment assumptions about business model, market focus, and strategic direction through these provisions.
How do reserved matters prevent dilution of my investor ownership?
Reserved matters typically require investor approval before issuing new shares beyond pre-approved ESOP pools, creating new share classes, or conducting share buybacks that change ownership percentages. These provisions stop founders or majority shareholders from issuing cheap shares to themselves or others, which would reduce your ownership stake without your consent. Capital structure protections ensure your percentage ownership cannot be diminished through unauthorized share issuances.
