McBride for Business Blog

How to Set Up a Board of Directors

July 10, 2017 // R. Shawn McBride // No Comments »

A board of directors isn’t only for mega Fortune 500 companies.

I often get asked about boards of directors from owners of smaller, privately-held companies. For many of these smaller companies, boards are a fine concept. So how do you set up a board that works and does great things?

First, you need to understand how your board will function. A private company has a couple of options. If it’s a corporation, there are statutory requirements, and a board is set up to function a certain way, with a certain number of votes and certain authority within it. So, you must work within that frame.

If you’re a limited liability company, the board is typically installed by your LLC or operating agreement. That means you have great flexibility in how you set that up. Which leads to the next question. What role do you want the board to have? We answer this differently for every company. Some companies want a true, fully-functioning board that has management authority and control over the business. This is what the corporate statutes contemplate generally. Other companies want a board that is less autonomous and answers to the owners.

In the LLC context, we can easily set these up by having people with different vote amounts on the board of directors, by contract, and by setting this up correctly, we give the board more authority and allocate the power how we want.

So, we set up the board the way we like, and want to do it in a way that’s tailored to your business. Do you want the board to function separately? Do you want the board to function as a secondary check over the main businesses or do you want the board to have a more advisory role? All these are possible, and we can set them up however we want. Within the board framework, we want directors who are desirable for our business. This may be people within the company; it may be people outside the company, it may be people in the industry, it may be people outside the industry.

This is a great time for strategic analysis of the blend of people best for your business. It is your company to set up and manage, and you have to figure out how you want to make that look from an overall perspective, and how you want to pull that together. Every board setup is going to be different, but it’s really about blending the things you want in the way you want them. Once you have a clear picture of what you want — either that you’ve developed on your own or in conjunction with a business strategist — you can take this to your lawyer to start building.

What’s your experience? Have you given thought to a board of directors? How have you set up your board? Join us in the comments below and let us know about your experience.

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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. Nick Cowie.

About the Author

R. Shawn McBride is the Chief Innovation Officer at McBride For Business, LLC. His signature keynote, The 3 Laws of Empowerment, gives audiences an entertaining look at how they can prepare, plan and protect themselves. You can email R. Shawn McBride or (214) 418-0258.


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Posted In: Business, Growth, Management, Strategy

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