Board Observer: A silent observer or a game changer?

-Pammy Jaiswal and Neha Malu |


Getting an investor for one’s business is a crucial stage for any company and so no company would want to lose the opportunity to crack a deal with the investor even if it has to give away certain rights and powers to the said investor. Looking at the Indian statistics, it has been observed that Private equity (PE) and venture capital (VC) investments have been on a growing trend and they stood at US$ 4.4 billion across 99 deals in December 2021. As the investors decide to put in funds, they look out for having such rights so that they are updated about every major decision being taken in the investee. Majority of the decisions affecting the day-to-day operations are usually taken at the board level. Therefore, it has been observed that generally to strengthen the investor’s confidence in the operations and decision making, a “Board Observer” is appointed by such investor pursuant to an agreement who carries certain rights and obligations.

The Board Observer is a representative of the investor who is expected to observe the board proceedings without being formally appointed as a director and has no voting rights in the board deliberations. Internationally, the said concept is much more popular and has also been a point of litigation to decide on the rights and obligations of such Board Observers.

In this write-up, we have tried to deal with the important aspects relating to the concept of Board Observer so as to determine whether he is just a “silent observer” on the board of the investee company or a “game changer” in the real sense.

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