The $54 Million Trip Wire Most Startup Boards Have Never Heard Of
If your company just took venture capital or private equity money, there's a decent chance the investor asked for a board seat — or, more quietly, a "board observer" seat that doesn't even come with a vote. Almost nobody treats that as a legal event worth researching. It usually should be.
Buried in the Clayton Act since 1914 is Section 8, a rule that bars one person from sitting on the boards of two competing companies at the same time. For most of the last century it was a sleepy corner of antitrust law that big-company general counsel dusted off once a year. Not anymore. The Federal Trade Commission and Department of Justice have spent the last three years aggressively widening who counts as a "person," what counts as "serving as a director," and which entities count as "corporations" — and every January, the FTC quietly resets the dollar thresholds that decide whether any of it applies to you.
The 2026 update just landed. Here's what changed, who it actually affects, and the two-question test that tells you in under five minutes whether your board needs a closer look.
What Section 8 Actually Prohibits
Section 8 of the Clayton Act says, in effect: a person can't serve as a director or officer of two corporations at the same time if those corporations are competitors and both are big enough to matter. The theory is straightforward — if the same individual sits in both boardrooms, competitively sensitive information (pricing plans, expansion strategy, customer lists) can leak between rivals without anyone ever emailing a spreadsheet. No intent to collude is required. The interlock itself is the violation.
For decades, this mattered mainly to Fortune 500 companies whose directors sat on half a dozen boards. What's changed is who the FTC and DOJ now say the rule reaches.
The New 2026 Thresholds
Section 8(a)(5) requires the FTC to revise the dollar thresholds every year based on the change in gross national product, so the numbers move even when the underlying policy doesn't. For 2026, the FTC has set:
- Section 8(a)(1) threshold — $54,402,000. Both companies only fall under Section 8 at all if each one's capital, surplus, and undivided profits exceed this figure. Below it, the statute doesn't apply, full stop.
- Section 8(a)(2)(A) threshold — $5,440,200. This is one leg of the "de minimis" safe harbor described below — the floor for what counts as meaningful competitive overlap.
These thresholds took effect immediately upon publication and apply for the 2026 calendar year. They're not dramatically different from 2025's numbers — the point isn't the size of the jump, it's that the goalposts move every January, and a company sitting just under last year's line can find itself just over this year's without doing anything differently.
The Safe Harbors: How Small Overlaps Get a Pass
Clearing the $54.4 million size threshold doesn't automatically mean you have a violation. The statute carves out three "de minimis" exceptions for cases where the competitive overlap between the two companies is trivial:
- The absolute dollar floor — one of the two companies' "competitive sales" (revenue from products or services that directly compete with the other company's offerings) is under $5,440,200.
- The 2% test — either company's competitive sales are less than 2% of that company's total sales.
- The dual 4% test — competitive sales at both companies are under 4% of each company's respective total revenue.
Meeting any one of these three exceptions means the interlock is exempt, even if both companies individually clear the $54.4 million size threshold. "Competitive sales" is measured against the most recently completed fiscal year, which matters for fast-growing companies — a business that pivoted into a new market last quarter may not show the overlap on paper yet, even if it exists in practice today.
Why This Suddenly Matters for PE- and VC-Backed Companies
The size thresholds above are why Section 8 used to be a big-company problem. Two developments have pulled smaller, growth-stage companies into scope:
Board observers count now. In a joint statement, the FTC and DOJ took the position — adopted unanimously, including by Republican-appointed commissioners — that Section 8's prohibition on "serving as a director" extends to board observers, even though observers typically have no vote. If your investor's designated observer also observes at a competing portfolio company's board, that's now treated the same as a formal directorship.
Investment firms and non-corporate entities count too. The agencies have also taken the position that "person" includes investment firms and funds (not just individual humans), and that "corporation" extends to LLCs and other non-corporate entities despite the statute's literal wording. Put together, a PE firm that places designees — directors, observers, or executives — on the boards of two portfolio companies that compete in even a single product line can trigger Section 8, even where no individual human sits on both boards in the traditional sense.
That combination is exactly why sector-focused PE firms and family offices — the ones that deliberately build out several companies in the same vertical — are now a stated enforcement priority. A firm that invests specifically in, say, home health, staffing, or specialty logistics is far more likely to end up with overlapping board seats across competitors than a generalist fund, purely because of how the strategy is built.
A Real Enforcement Example
This isn't theoretical. In September 2025, the FTC resolved a Section 8 matter involving Sevita Health and Beacon Specialized Living Services — two companies under common private equity ownership that both provide residential services to people with intellectual and developmental disabilities, and that shared three overlapping board members. The FTC didn't file a formal complaint or negotiate a consent order; it simply announced the interlock, and the shared directors resigned from one board or the other to resolve it.
No fines, no litigation — but also no advance warning to the companies before the FTC's Bureau of Competition made it public. The agency's own statement encouraged PE-backed companies broadly to review their board composition, "including when new board members are added as a result of investments by private equity firms or other new shareholders." That's a direct signal that this kind of review is expected to happen proactively, not after a problem surfaces.
Not the Same Thing as an HSR Merger Filing
It's easy to conflate this with the Hart-Scott-Rodino (HSR) premerger notification thresholds, which the FTC also updates every January and which get far more press attention. They're related but separate. HSR governs whether a transaction — an acquisition, a merger, a large stock purchase — needs to be reported to antitrust regulators before it closes. Section 8 governs an ongoing relationship: whether a person can continue sitting on two competing boards at all, with no transaction in sight. A deal can clear HSR review cleanly and still leave the acquiring investor's designee holding an illegal interlock the day after closing, simply because that same designee already sits on a competitor's board from an unrelated investment. Reviewing HSR exposure on a deal and reviewing Section 8 exposure on the resulting board seats are two different checklists, and it's worth not letting one substitute for the other.
A Practical Checklist If You Have Investor-Appointed Directors
You don't need outside counsel to run a first-pass check. Ask these questions about every director, and every board observer, connected to an outside investor:
- Does this person (or their firm's other designees) sit on, or observe, the board of any company that competes with us — even in one product line or one region?
- Do both companies' capital, surplus, and undivided profits exceed $54.4 million? If either is meaningfully smaller, Section 8 likely doesn't apply.
- If both clear that bar, does the competitive overlap qualify for a safe harbor — under the $5.44 million floor, under 2% of either company's sales, or under 4% of both?
- Has anything changed since the last board meeting — a new investment, a product launch, an acquisition — that shifts either company's competitive footprint?
Two practices from law-firm guidance are worth building into your governance calendar rather than treating as a one-time exercise: a standard board-questionnaire that asks incoming directors (and the funds appointing them) about other board and observer positions they or their firm hold, and an annual refresh of that questionnaire for existing directors, since competitive overlap can appear well after a director joins without anyone changing seats.
Where This Connects Back to Your Books
None of this is accounting advice, but it touches your books more directly than it looks. The competitive-sales percentages that decide whether you qualify for a safe harbor — 2% of total sales, 4% of total sales — are pulled straight from your revenue by product line and by customer segment for the most recent fiscal year. A company whose chart of accounts doesn't separate revenue by product or market has to reconstruct that breakdown from scratch the moment a lawyer asks for it, usually under time pressure. A company that already tracks revenue at that level of granularity can answer the question in an afternoon.
That's one more argument for keeping your revenue recognition clean and queryable rather than lumped into a single top-line number. Beancount.io gives you plain-text, version-controlled accounting where revenue can be tagged and broken out by product, customer, or segment from the day you record it — so when a governance or compliance question needs a specific slice of your numbers, you're running a query instead of rebuilding a spreadsheet. Get started for free and see why developers and finance-savvy founders are moving their books to plain text.