If your business is a corporation, then you are required by law to have a board of directors. Depending on your particular corporate structure and your state, one or two directors may be all that’s legally required.
Advantages of Having a Board
Forming a board isn’t just about meeting the letter of the law. It’s about doing what’s best for your company. If you’ve reached a stage in your company’s growth where you need advice and input on general business areas like financial auditing, strategic planning, raising capital, and management decisions consider getting some assistance. A board of directors with diverse expertise can be an invaluable and independent resource. Also, having a board is seen as an asset by prospective investors, because there’s more fiduciary guidance.
Directors with strong business and personal networks can also help you bring in new talent both on the board and in your C-suite.They can also help with succession planning. All of this extra oversight allows you to focus more energy on operations and your business at large.
Directors or Advisors?
A legally-formed board of directors is the governing body for your business with fiduciary responsibility for how your company is run. All major decisions, such as hiring or firing the CEO, need to be ratified by the board. This means your board could outvote you on important issues. But the board should not run the company. You and your senior management team are responsible for business operations, while your board provides guidance, strategic leadership, and insight at a higher level.
An alternative to a formal board of directors is an informal advisory board. Many small businesses assemble a team of expert advisors to provide the same type of high level strategic planning and direction but without being bound by board decisions. Since an advisor generally does not have the fiduciary and legal responsibility of a director, he or she may offer advice more freely. For this reason, some business owners have a formal board plus an advisory board.