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Board of Directors vs. Advisory Board

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All Above Board

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Business Business Leaders. Every public company must have a board of directors composed of members from both inside and outside the company. The board makes decisions concerning the hiring and firing of personnel, dividend policies and payouts, and executive compensation.


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Fast Fact A board member is likely to be removed if they break foundational rules; for example, engaging in a transaction that is a conflict of interest, or striking a deal with a third party to influence a board vote. Using directorial powers for something other than the financial benefit of the corporation. Using proprietary information for personal profit, Making deals with third parties to sway a vote at a board meeting. Engaging in transactions with the corporation that result in a conflict of interest.

In addition, some corporate boards have fitness-to-serve protocols. Compare Investment Accounts. Another thing to consider when selecting board members is adding influential people who may have contacts in the fields you need to make your startup successful. Expertise is important when it comes to building and growing a company. Even though board members are key resources who provide support, insight, and professional networks, not all members are created equal. There are many factors that determine when a board should meet, including what stage the company is in and the needs of its management.

Typically in a startup company, the board will meet in person at least once per quarter. This will allow them to review each quarter's results to ensure the company is on track. Companies that are in the early stages of development may find it beneficial to hold more frequent board meetings, which can either be done in person or over the phone. Some companies may find informal board phone meetings more beneficial so that they can stay on top of operations and make the necessary changes to avoid encountering problems.

When crisis situations or major changes occur, such as being acquired by another company or acquiring a company, the board will be expected to meet more frequently. This can be as frequent as every day or even multiple times per day. A typical board meeting will run a few hours, though many run longer depending on what is on the agenda.

If you need help organizing and overseeing a board of directors or just starting a business, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site.

Designing the Ideal Board Meeting – Board Conflict

Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures and Airbnb. What Does a Board of Directors Do? Common Directors. Directors represent the common stock and shareholders. Common Stock Directors are often one or more of the company founders and sometimes seed investors.

Before raising venture capital, your board usually only has Common Directors. Preferred Directors. Preferred Directors represent preferred stockholders. These Preferred Directors are typically lead investors who make company decisions based on how they affect the interest of all investors. Independent Directors.

These are third-party directors appointed to represent only the company's interest. Independent Directors are market experts that make decisions without being bogged down by stockholder allegiances.

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These directors have no stock in the business. Consider Having an Advisory Board Startups often choose to skip having a typical board until they get outside investors.

Board of Directors vs. Advisory Board

Have the Right Number of Members When filing articles of incorporation, you usually must pick an initial director or directors for your startup. Hire Independent Directors When a company raises money through investors and gains venture capital, their investors ask for seats on the board in order to keep an eye on their investment. Don't Demand Management Support Expecting your board of directors to fall in line behind management is a recipe for disaster, as the benefit of a board is the ability to make decisions based on divergent opinions.

Avoid Misalignment Regarding the Board's Role Boards of directors have many fiduciary and legal responsibilities. Establish Structure for the Board Think about putting four-year term limits on board membership along with other rules. Attributes to Look for to Build Your Model Board To ensure your board is effective at its job, it is vital that you choose the right people to be on your board.

Diversity Having a board made up of individuals who have different expertise, knowledge, and backgrounds can provide the best combination to keep your company moving forward. This includes: A marketing expert. It is important to have a member who understands the target market for your business and the ways to reach that audience. A financial expert. Having someone who understands the ins and outs of finances for an early startup can help get you connected with funding sources and provide oversight for the company's financial plan.

An advisor. A board member with an advisor skill set can help guide decisions and aid in negotiations that the company may encounter during the startup phase. An exits expert. An exit strategy is almost always a part of the startup plan. Whether the exit results in an IPO or a merger and acquisition, having an expert who can prepare the company for what's ahead is vital.

An expert for each major department. For the final positions, you will want to add members who have experience in the other major departments that your company will have, such as product development, sales, etc. Relevancy While diversity is essential in a company, it only works if it is relevant to the direction the company is heading. Alignment The final attribute to look for when creating the perfect board is alignment. Find the Right People for Your Board Even though board members are key resources who provide support, insight, and professional networks, not all members are created equal.

Consider the future. When selecting board members, consider how they will function in the long term. Select directors who are ambitious, want to see the company grow, and have a vision for taking your company from a startup to a powerful business. Develop a clear job outline.

Make the title and description of each board member explicit from the beginning.

This includes both non-executive and executive positions. Define the goal of each role, including the role the board will play in risk management and strategy.