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Signs Your Organization Is Ready for a Board of Directors

Jul 19, 2022 10:00:00 AM

GIF of a boardroom smiling and clappingYour startup is off the ground and going strong. As you grow, you find yourself wondering: does your business need a board of directors? Here’s how you know – and the steps to get there!

What is a Board of Directors?

A board of directors (B of D) is a governing body and fiduciary of a company or organization composed of representatives elected by shareholders. Their job is to oversee the management and decision-making, including senior hire pay, dividends for shareholders, mergers, and major investments.

Reasons You Might Want to Form a Board of Directors

Your company is going public.

Not every business needs a board of directors, but all public businesses do! It is required by law. “Going public” means that the business sells all or a portion of itself to the general public for the purpose of raising capital through stocks (shares) and bonds. If your business is ready to go public, you’ve got to establish a board for the sake of fiduciary oversight.

You need a diverse pool of expertise.

One of the benefits of having a board is simply that you’re able to leverage a wide pool of expertise and skill. They’re able to help you tackle the “big picture” management of the company, especially regarding big financial decisions. They allow you to focus on doing what you do best without getting lost in the weeds of management tasks.

You want to instill investor trust.

Investors always feel more confident when they know a board is there to represent their best interests. The presence of a board inspires a sense of confidence and security, something that many investors look for before throwing their financial support behind a company. A board helps guarantee fiduciary guidance.

You’re having trouble seeing your blind spots.

As a business owner, you might be seeing your company through rose-tinted glasses. Sometimes you’re just too close to it to get the full picture. A board helps you see your blind spots because they are independent managers that deal beyond the day-to-day minutiae. They’re going to point out problems you may not see and help you solidify your company’s trajectory.

Steps to Forming a Board of Directors

Whether you’re required to form a board by law or have determined that it’s in the best interest of your company to do so, you’ve got to follow the right procedures.

Step 1: Consult with an attorney

First things first, consult with an attorney. There are legal requirements for your articles of incorporation and board bylaws, including how often to meet, standards for recordkeeping, etc. An attorney will help ensure that you’re forming your board by the book!

Step 2: Register articles of incorporation

Articles of incorporation are registered with the Secretary of State or department of state, depending on your local laws. Your attorney can help ensure that you get everything submitted properly. It is a formal document detailing the names of founders, the company, the initial board members and their addresses, and a detailed mission statement or description of the purpose of your organization. Depending on your state, you may encounter fees between $50 and $300 to file.

Step 3: Establish bylaws

Bylaws govern all procedures for your board of directors. There are guidelines to follow, so continue to consult an attorney. Bylaws include things like meeting frequency and procedures, voting guidelines, and general rules for governance. That includes how to remove and elect members, terms, titles, and responsibilities. They effectively state the standard for how your board will conduct themselves.

Step 4: Elect board members

Overhead view of people meeting at a tableThough investors may make up a portion of your board, there should be variety to maintain the best interests of the company. You had a few initial board members listed in your articles of incorporation. That likely included founders. What’s important is that you have the right number of board members (an odd number and no more than seven for a small business) and a variety of expertise from different industries represented.

Step 5: Hold your first meeting

Your first shareholder meeting is going to be to formally adopt the bylaws and elect or approve the board members. This is the foundation you’re setting. Generally, your articles of incorporation will designate the meeting time and place. You should have a clear agenda set for the meeting so that its purpose is clear. Also, consider if and how to allow for proxies in the case of absent shareholders. It’s also possible to allow shareholders to vote online or via mail if they’re unable to attend personally.

 

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