In addition to Rights of First Refusal, the implementation of transfer restrictions, typically located in a company’s bylaws, is a tool used by startups to maintain control over their capitalization table.

Blanket transfer restrictions encompass comprehensive limitations on share transfers within a company. They generally take the form of a section in the company’s bylaws that essentially says “no transfer of stock may occur without Board approval,” subject to some customary exclusions such as estate planning transfer. This makes the company’s position on startups quite simple: they need to explicitly approve any transfer of its stock in order for such a transfer to occur.

However, startups often attempt to strike a balance between control and flexibility with respect to transfer restrictions. Typically, the presence of transfer restrictions in the company’s bylaws does not mean that the company prohibits secondary transfers. The company often just wants the discretion to veto transfers that they find unfavorable to the company’s interests.