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June 22, 2020
Many founders find themselves confused about whether or not to set up a board of directors for their small- or medium-sized businesses. To make things simple, if your business is a corporation — even if it’s a small startup — then you are required by law to have a board of directors. And, depending on your state or your corporate structure, one or two directors may be all that’s legally needed.
On the other hand, having a board is often discretionary if you run a company structured outside of the corporation limits. In this case, you can consider appointing an unofficial advisory board, which can be formalized later. An advisory board, however, may not have the authority to oversee the finances and management of your business. Therefore, you should take a moment to determine whether appointing a board of directors might be the right choice for your company.
A board of directors can provide stability in your firm and create an independent level of accountability. The board is required to hold at least one meeting every year, although some company boards meet every month in the initial years, as it sets the pace for running the business smoothly.
While public corporations usually have bylaws that set forth the responsibilities of all board members, private companies should also make sure the roles of their boards are well-defined and well-documented. Here are the typical advantages of having a board of directors:
Some potential disadvantages of having a board of directors include:
This begs the question: “What should you pay your board members?”
Directors of a board are usually compensated in a combination of cash and equity, in addition to a retainer, fees for attending meetings and additional retainers for committee chairs and members, reports USA Today.
However, the trick is to decide what is just and adequate compensation. This depends on a number of such factors as the size of your business, your industry, your location and the like. For example, if your business is located in a big city, you can expect to pay more than what you’d have to pay if you were in a small town. And if you are looking for experienced directors such as senior executives in large corporations, you will have to shell out more money than if you appointed those from smaller companies.
With these considerations in mind, determine whether appointing a board of directors might be a good move for your business and if so, you can begin looking for the right people who would most benefit your company.
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