If you’ve been following our blog, you know we work with business owners to help them build companies that will stand the test of time. Companies that will do more than just what the owner does and that will survive even if the owner is not there. We help them build robust management systems, and often, that means a Board of Directors.
But the question often arises, how do we set up a Board of Directors? How do we make one work? There are several pieces to this: what number of directors, how are they selected, and, structurally, how do you have them work with each other?
Usually, the first question is the number of directors to have. Standard advice is to have an odd number so that you will not have a tie if all directors are voting on the issue. This will avoid a true deadlock. In the LLC context, typically state law will allow you to give some members of the Board of Directors more voting authority than others, so as to avoid tie situations, even if you have an even number. A deadlock situation is a real risk, as we do not want a company run by directors who cannot agree.
Selecting Board members is the next challenge so that you balance your business interests. There is no hard and fast rule, but you will typically want some people from inside the company, who have strong knowledge of the business and its operations. You will also want some people from outside the company, who do not have as much knowledge, but who have broader experience from different industries. These people can bring innovations, and they can keep an eye on what is going on inside the company.
Once you have chosen your Board of Director members, then you will determine how your Board operates. This varies greatly in companies, but usually, you are going to have quarterly meetings with your directors. Informational reports should be sent to your directors on a more frequent basis so that they are kept updated about the company. Board meetings are typically held in a set fashion, which has come down through corporate tradition, and involve discussion of what is happening in the company, votes on particular matters that need Board attention, and then any other issues. More complex issues that arise may be referred to special committees of the Board that meets and work on them and then brings recommendations back to the entire Board of Directors.
You have a good deal of flexibility on how you want your Board to operate, particularly if you are setting up an LLC.
Boards are not anything to be scared of. They work for big companies and small ones. They are not overly complex, and they work well for a reason. There are set structures, they make sense in the business world, and now, with modern LLCs and corporation statutes, they can even be customized to your particular needs and wants.
What has been your experience with a Board of Directors? Have you been scared to take this step? What will you do to better set up your Board? Join us in the comments below and let us know about your experience.
Each case is unique. Past results do not guarantee future outcomes. This posting is intended to be a tool to familiarize readers with some of the issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. Each case is unique. Past results do not guarantee future outcomes. This article should not be treated as legal advice to any person or entity. FreeImages.com/photographer Michel Meynsbrughen.
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