5 Tips for Building The Right Board
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The document discusses the importance of building an engaged board of directors for a company. It notes that as a founder without outside investors, you have flexibility to choose advisory board members, but should consider individuals beyond just friends and family who can provide skills and relationships. Once outside funding is received, investor documents may require board seats for investors. Properly establishing a board is important as boards have legal responsibilities including fiduciary duties of care and loyalty to act in the company's best interests. Outstanding entrepreneurs recognize that the right board can be advocates and leverage their connections to help accelerate company growth.
5 Tips for Building The Right Board
- 1. the Importance of Building the Right Board Tom Walker DO NOT Underestimate
- 2. An ENGAGED and CONNECTED board of directors is one of the best tools an entrepreneur has for building an OUTSTANDING company. But building the “right” board isn’t automatic— especially if you haven’t done it before. Here are some things to know.
- 3. The requirement to establish a board depends on the company’s legal structure. State law in all fifty states requires corporations and S corporations to have a board of directors. LLCs are not required to have a board, but may choose to have a board of managers or one manager. Boards of advisors have no legal obligation.
- 4. youwill choose members of your board. Prior to outside investors, the board role is more advisory than governance. Who you select is up to you. Don’t limit yourself to friends and family. Consider individuals who bring skills and relationships that you don’t have. Consider members who may stay on the board long term, even after outside investors come in. As the company founder with no outside investors,
- 5. Once you receive outside funding, “investor’s rights” in the term documents will likely require board seats. Investors typically will take one to two seats on your board. For angel investors, the board seats often go to angels who participated directly in the due diligence process, hopefully people with whom the entrepreneur has developed a good relationship.
- 6. Boards of directors have legal responsibilities. Ask your attorney to help you understand the fiduciary duties of a board, which include duty of care and duty of loyalty. Duty of loyalty requires that boards act in the interest of the corporation and not their own interest or the interest of any other entity or person. Duty of care requires that boards act based on all available and material information.
- 7. Boards of directors determine CEO compensation. They HIRE and FIRE CEOs. Enough said.
- 8. recognize that boards can be amazing advocates, that they have relationships and connections that can accelerate a startup’s growth, and that the “right” board is an asset that doesn’t show up on the balance sheet. The most outstanding entrepreneurs