Founder-led governance — the stage where you are the sole director, and all authority and responsibility sits with you.
🚨 Disclaimer: This content is not legal advice. It is general commentary designed to help founders get their heads around key legal concepts, decisions and risks - but it doesn’t account for your specific circumstances.
Every startup is different, and the right approach will depend on your unique situation. If you’re making important legal decisions or signing anything binding that you are unsure about, talk to a lawyer.
1. What is a Board?
A board of directors is the group of people legally responsible for governing a company. They have authority to make decisions on behalf of the company, and they are personally accountable for how that authority is exercised.
In the very early stages of your company, the board is probably just you. You are the sole director.
You already have a board - it is you.
You became a director the day you incorporated.
Nobody warned you.
There was no training, no moment where someone explained what that means.
You clicked through the Companies Office registration, paid the fee, and got back to building your business.
But here’s what happened in the background: you took on legal obligations. Personal ones. The kind that don’t disappear if the company fails.
Most founders discover this one of two ways:
- during investor due diligence when they can’t answer basic questions,
- or when something goes wrong and a lawyer explains what they should have been doing from day one.
This guide exists so you find out a third way: now, while there’s still time to get it right.
Jump to the section that answers your question:
Or read on for the fuller picture.
You’re probably feeling one of these:
- “I don’t know enough about governance to sound credible.”
- “This is for big companies, not me.”
- “I don’t have time for this.”
- “I had an advisor once and it went badly.”
You don’t need to. You need to know enough to stay out of trouble and make good decisions. That’s different.
The law disagrees. Director duties apply from incorporation, not from your first revenue dollar.
Governance at this stage takes less time than a weekly standup. The question is whether you do it now or pay for it later.
That’s a structuring problem, not a governance problem. We’ll cover it.
The founders who hit trouble in the governance space are usually the ones who made undocumented equity promises, ignored their solvency position, or blurred the line between a director and an advisor - and had no paper trail to show otherwise.
Governance isn’t bureaucracy. At this stage, it’s just evidence that you’re running a real company.
2. Your Legal Position as a Director
This section is for you if you’ve just incorporated, or if you’re not sure what your obligations as a director actually are.
The moment you incorporated your company, you became a director. That’s a legal status, not a job title. And it comes with real obligations under the Companies Act 1993 - whether or not you have investors, revenue, or employees.
What is governance? At its core: knowing who has the authority to make decisions, making sure those decisions are made responsibly, and keeping a record that proves it.
Governance is the job of the director. That’s you.
As the sole director (or co-founder directors) of the company, you are legally required to:
Act in good faith | Make decisions in the best interests of the company, not yourself. Think of the company as a separate legal person (because it is). Your job is to act as its guardian. |
Act with care and diligence | To the standard expected of a reasonable person in your position. You don’t have to be perfect. You do have to be thoughtful. |
Not trade recklessly | If you know the company cannot pay its debts, you cannot keep operating as if it can. This is the most commonly breached duty by founders in financial difficulty. If you can’t pay your your tax (PAYE, GST) your suppliers, employees, or contractors, you must make arrangements - or stop trading. |
Not incur obligations you can’t meet | Don’t commit the company to rent, wages, or purchases you can’t fund. This sits alongside reckless trading - the obligation is to look ahead, not just at today. |
Disclose and manage conflicts of interest | If you have a personal interest in a decision, document that you recognised it. This is very common in early stage companies. Recognising the conflict and recording it is what matters. |
Maintain proper records | Minutes, resolutions, financial records. Your accountant can help with compliance requirements, but the obligation is yours. |
These duties apply from the day you incorporate.
There is no revenue threshold.
There is no “I’m too small” exemption.
And one more thing: when you eventually have co-directors, each of them carries exactly the same legal liability as you do. This is worth understanding before you invite anyone onto your board.
3. What Founder Led Governance Actually Looks Like Right Now
This section is for you if you know you have governance obligations but aren’t sure what doing them actually requires on a day-to-day basis.
As a director, you have legal obligations from the moment you incorporate - but meeting them at this stage is relatively quick and easy.
Forget board meetings. Forget board reports. Forget governance frameworks designed for companies ten times your size.
Right now you need five things, and none of them should take more than a few hours a month to maintain.
Governance Areas
Governance Area | What’s Required | Common Founder Mistake |
Solvency | Know your cash position at all times:
• How much money do you have?
• How long will it last? (your runway)
• Can you pay your bills next month? If not, what’s the plan? | • Delegating financial visibility to your accountant, partner, or “someone who’s good with numbers.”
• Assuming it will all work out in the end. It won’t, unless you’re watching it. |
Major Decisions | Keep a written decision log (example below).
For each major decision, record:
• The date
• What you decided
• Who you consulted
• Why you made the call you did | • Making decisions verbally, in conversation, or in your head - and never documenting them.
• Waiting to see how a decision turns out before writing down what you decided and why. |
Equity | Maintain an accurate, up-to-date share register (cap table) at all times, showing:
• Who owns what shares
• Any options, shadow shares, or convertibles that will affect future ownership | • Assuming the Companies Office record is the source of truth. It is not. You have a legal obligation to maintain your own share register.
• Making equity promises verbally and not documenting them. |
Conflicts | Keep an Interests Register (example below).
For each person in a governance or advisory role, record any other interests that could conflict with your business, now or in future. | • “It doesn’t matter, it’s just me.”
• Failing to recognise that your other relationships may not always be in the company’s best interests.
• Your duty is to the company, not yourself, your co-founders, or your whānau. |
Records | Keep final, signed versions of all important documents where you can find them:
• Annual accounts and tax returns
• Contracts (customers, suppliers, employees)
• IP filings, NDAs
• Constitution, incorporation docs | • Treating admin as optional.
• Filing unsigned or draft versions of documents.
• Relying on email as your filing system. |
Your Decision Log
A simple spreadsheet or Google Doc. For each major decision, record five things:
Date | Consulted with | Decision made | Why | Fallback if wrong |
Date of the decision | Who you spoke to before deciding (advisors, lawyers, accountants - they are not liable for your decision, but worth noting) | What you decided - be specific and unambiguous | What you believed at the time - record this before you know how it turns out | For one-way-door decisions (irreversible), what’s your plan if it goes wrong? |
Your Interests Register
For each person in a governance or advisory role, record any interest that could create a conflict with your business, now or in future.
Where a conflict is declared in relation to a specific decision, note it in your decision log at the same time.
Person | Role(s) | Interest or Activity | Date Declared - Date Ended |
Alex Tane | Founder
CEO
Director | In a relationship with Priya Sharma (advisor) | 1 Jan 2024 - ongoing |
Priya Sharma | Advisor | In a relationship with Alex Tane (CEO/director) | 1 Jun 2024 - ongoing |
Morgan Liu | Advisor | Minor investor in company’s primary customer | 1 Dec 2024 - ongoing |
Sample Cap Table- Phase 1: Founder-Led Governance
Download the sample cap table, here ⬇️
Your Company Records
Set up a Google Drive (or equivalent) from day one, with a clear folder structure. The rule: only final, signed versions of documents get filed. Not drafts. Not unsigned versions.
One day, this becomes your investor due diligence room. Having it organised and complete is one of the clearest signals that you run a real company, and are a good investment risk.
A simple structure to start:
Folder | What belongs here |
Product / Service | IP filings, patents, technical specifications |
Suppliers | Contracts, guarantees, terms of trade |
Customers | Proposals, contracts, renewals (sub-folder per customer) |
Company | Certificate of Incorporation, co-founder agreement, Constitution, ESOP scheme |
Advisors | Letters of appointment, ESOP grant letters |
Board / Directors | Letters of appointment, consent forms, director resolutions |
Team | Employment agreements, contractor agreements |
Financial | Bank statements, annual accounts, tax returns (sub-folders by year) |
4. Who Has Authority - and Who Doesn’t
This section is for you if you’re building a team around you - advisors, early employees, maybe a first investor - and you’re not sure who actually has the power to make decisions or bind the company.
One of the most common early-stage governance mistakes is blurring the lines between different roles. As a founder you’re likely wearing many hats - shareholder, CEO, sole director - and the people around you may not understand the difference either.
Here’s the clarity you need:
Role | Legal Authority over the Company? | Fiduciary Duty to the Company?** | Can bind the company in contracts? | Removed by |
Director (at this stage, usually the founder) | Yes | Yes | Yes | Shareholders |
Shareholder who is not a director | No* | No | No* | Another shareholder buying their shares |
Advisor | No | No | No | Founder / CEO |
Contractor / Employee | No | No | No | Founder / CEO |
*Unless specific shareholder rights are contractually granted.
**A fiduciary duty means a legal obligation to act in the best interests of the company, above your own personal interests. Only directors carry this duty.
The rule is simple: only directors have legal authority. Advisors do not. There is no in-between.
5. Advisors - Useful, but Not Governance
This section is for you if you’re thinking about bringing on advisors, have been offered an advisory role, or have had a bad advisor experience and want to do it better next time.
Advisors can add real value in the early stages of building your business. They can also be a source of equity leakage, distraction, and future legal disputes if structured badly. This section covers how to tell the difference, and how to set up an advisory engagement that actually works.
One thing to be clear on before you read further: advisors are not directors. They have no legal authority, no fiduciary duty (the obligation to act in the company’s best interests), and no personal liability.
If you’re not sure what that distinction means, read Section 4: Who has authority first.
In the early days of building your business, surrounding yourself with people who have relevant experience is genuinely valuable. But the early-stage founder trap is giving equity to advisors for the wrong reasons:
- “They believe in me and want to help”
- “They’re well known in the industry”
- “They might invest later”
That’s validation, not value
That’s branding, not advice
That’s always an option regardless of whether they’re an advisor
Three things to remember about advisors:
- Advisors are not directors. An advisory board is not a governance board. Advisors report to you (the CEO/founder) and have no decision-making power or authority.
- Too many advisors causes “advisor whiplash”. This is your company. What you do with the advice you get is your call.
- The most useful question to ask before engaging an advisor: has this person actually built a business?
Advisor vs Director- What’s Actually Different
Dimension | Advisor | Director |
Legal authority to act on the company’s behalf | No | Yes |
Fiduciary duty to the company | No | Yes |
Liability exposure | No | Yes |
Decision-making power | No | Yes |
Purpose | Provide input, guidance, and connections | Govern the company and grow its value |
Reports to | Management / CEO / Founder | Shareholders |
Removed by | Founder / CEO | Shareholders |
Selecting and Structuring an Advisor Engagement
Spend as much time doing due diligence on a potential advisor as they would on you if they were investing. Ask around. Understand their motivations. Talk to other founders they’ve worked with.
When you bring an advisor in, confirm in writing:
- What they are expected to deliver (specific, not vague)
- How often you’ll meet, and whether they’re available between meetings
- How long the engagement runs, ideally with a review point at 3 months and a renegotiation point at 12 for ongoing engagements
- How they’re remunerated, and under what conditions that changes
A note on terminology: We’re not talking about mentors, accelerator coaches, or casual coffees here. We’re also not talking about your lawyer or accountant - they’re professional advisors who charge fees for services. This section is about bringing someone into your team as a strategic advisor, with a formal engagement and some form of remuneration.
Remuneration - What’s Reasonable in New Zealand
The most common approach is ESOP (share options), which vest when specified milestones are reached.
This aligns the advisor’s interest with yours: they only benefit if the company succeeds.
Some examples of how NZ based startups remunerate NZ based advisors:
Ongoing advisory engagement
(e.g. product-market fit support, monthly meetings) | 0.25% to 0.5% per year, specified as a number of shares, vesting at 12 months and monthly thereafter |
Commercial introductions in an enterprise market | 0.25% ESOP per introduction that converts to a paid trial, plus 2–5% of first-year revenue if converted to a multi-year contract - typically capped at 1.25–2.5% total |
Guard your ESOP pool. Options have no validated price today, but if the company succeeds, they will have real value. Every option you grant now is a real cost to future-you and your co-founders. Do not issue them without clear scope, clear milestones, and a written agreement. Do not issue them without understanding the impact on your cap table.
Equity Guardrails - What Can Go Wrong
Situation | Why it’s risky | Long-term impact | Guardrail |
Advisor equity with no clear role, deliverables, or milestones | No expectation of value delivery | Permanent dilution for no return | Written engagement with defined outcomes. Vesting on milestones, not just time. |
Verbal equity promise, not documented | No record of what was agreed | Legal dispute when the company becomes valuable | Everything in writing. Signed by both parties. Filed where you can find it. |
Co-founder equity split with no vesting | Avoiding a difficult conversation | A departing founder retains a large share of the company | Written co-founder agreement with vesting for everyone’s shares. |
The discipline required:
- Nothing verbal. Everything in writing.
- Vesting is standard. Four years with a one-year cliff is the common NZ structure.
- Your cap table is a legal document in all but name. Treat it that way.
6. Equity - The Decisions You Can’t Undo
This section is for you if you’re deciding how to split equity between co-founders, thinking about issuing options to advisors or early employees, or trying to understand what a cap table is and why it matters.
A cap table (short for capitalisation table) is a record of who owns what in your company - shares held, options granted, and any other commitments that will affect ownership in the future. You are legally required to maintain one. The Companies Office record is not a substitute.
“Equity allocation” is just a description of who owns how big a slice of your company. At incorporation, if you’re a sole founder, you own 100% of it.
Most successful growth businesses have a co-founder team. How you divide the equity between co-founders is probably the first of many difficult conversations you’ll have as you grow the business. Different people bring different amounts of time, money, and skill. Unless the split reflects that fairly, you are planting the seed of future trouble.
Mike Moyer’s book Slicing Pie proposes a workable model for creating a dynamic equity split in an early-stage, bootstrapped company. Worth reading before you have the co-founder conversation. Equal splits of equity between co-founders is almost never the right starting point!
As the business grows, the cap table changes every time you:
- Issue new shares or options to employees, advisors, or directors
- Offer shares to investors in a capital raise
- Cancel unvested shares when a founder leaves
- And a number of other events over time
Each of these events changes the percentage of the company that you, the founder, own. This process is called dilution, and it is not inherently bad. With each raise, if the company is growing in value, the pie is getting bigger. A much bigger pie is your ultimate goal, even if you own a smaller slice of it.
But dilution that happens without your full understanding - through poorly structured advisor equity, undocumented promises, or a co-founder split with no vesting - is money you’re giving away for free.
Guard your cap table as if your future financial life depends on it, because if you’re successful, it does.
7. When Phase 1 Ends
This section is for you if you’ve been told you need to “get a board”, if you’re about to take on your first external investor, or if you’re wondering whether you still count as the sole decision-maker in your company.
Phase 1 is the stage where you - as the founder (sometimes with your co-founders) - are the sole director(s) of the company. Governance authority belongs to you alone. Founder-Led Governance ends when that changes.
The primary trigger is the appointment of an external (non-founder) director. Secondary triggers include:
- The right of a new shareholder (often an investor) to appoint one or more non-executive directors
- A shareholder agreement that introduces reserved matters – a list of decisions requiring the approval of the investor-appointed director
- Any arrangement that means you no longer have unilateral governance authority
When this happens, two things change that founders often underestimate:
- As founder-director, your duty is to the company - the same as it always was.
- As founder-CEO, you now report to the governance board. The board is your new boss.
The marker of this transition is authority, not emotion. You may feel ready for a governance board before you technically need one, or resist it long after you’d benefit from one. Watch for the structural trigger, not the feeling.
8. What Happens if You Ignore This
This section is for you if you’re weighing up whether any of this actually matters at your stage, or if you want to understand the real-world consequences of getting governance wrong early.
If you skip the basics of establishing simple Founder-Led Governance in your business, here’s what that could ultimately cost you. These are not hypothetical risks:
- Personal liability - reckless trading and breach of director duties can expose you personally to legal action if the company fails. See Section 2: Your Legal Position as a Director
- Equity leakage - undocumented and overly generous equity promises will dilute your ownership and potentially generate legal disputes. See Section 5: Advisors and Section 6: Equity
- Fundraising friction - governance gaps (missing records, unclear cap tables, undocumented decisions) delay or kill investor deals. See Section 3: What Founder-Led Governance Looks Like Right Now
- Investor distrust - founders who can’t explain their cap table or their decisions signal risk, even when the business is performing. See Section 6: Equity
- Structural weakness - the habits you don’t build in Phase 1 are significantly harder to retrofit in Phase 2, when the stakes are higher and the scrutiny is greater. See Section 7: When Phase 1 ends
Phase 1 ends here. Phase 2 begins when you appoint your first external director - and the rules change significantly.
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Governance for Growth Workshops
https://www.angelassociation.co.nz/aanz-events/
Debra runs Governance for Growth workshops with the Angel Association (AANZ), designed for founders, investors, and aspiring directors navigating early-stage companies.
These sessions cover what a board actually does, how to form one, director responsibilities under the Companies Act, and how to run effective board meetings — all grounded in real startup conditions.
Workshops run across New Zealand and are priced for accessibility ($50 per founder).