Your Company Is Your Baby, Right?

Then Why Do You Need a Board of Directors?


First things first: is there a legal requirement to have a board of directors for your LLC? And the short answer is no!

After all, you have been operating without a board ever since you’ve started your company. And when you formed your LLC, your lawyer never even suggested that you needed one.

Ok, if that’s true (and it is), then why should you consider having one? Isn’t it complicated? And who would be on your board? And what could they do to help me? After all, I know this business inside and out!

In my opinion, the biggest benefit to having a board of directors is also the biggest drawback.

The function of a board of directors is to make major business and strategic decisions for your company. It is not about handling day-to-day issues that normally arise.

The obvious benefit to having a board is that you get the experience, skills, and creativity of others to help you grow your business. This is not to mention the contacts and possible help with raising funds for your company that they automatically bring with them. You are getting all of their help without having to hire and pay them with your limited funds.

In my experience, one of the larger but unrecognized benefits of having a board of directors is the increased credibility they bring to a company, your company! The implication is that people wouldn’t join a board of directors unless they had confidence, belief, and trust in you and your business. And if they do, shouldn’t you also?



You must ask yourself the question, if you would like qualified people to join your board of directors, what’s in it for them? Why would they add extra responsibilities to their lives without seeing benefits to themselves. And that’s an entirely different discussion that you must have the answer to before you ask anyone to join.

With the help of a creative business attorney (a little self-serving, I know), you will be able to develop benefits that will be very attractive to others as long as you do not think of it as an expense, but rather as the one of the biggest benefits you could ask for in business. Give gratitude to these folks who are showing such trust and confidence in you!

Peoples time is the greatest asset that they have and they are willing to give you some of it blindly in most cases, without knowing how it will benefit them.

OK, it’s time to review some of the disadvantages to you if you decide to form a board of directors for your LLC.

The most significant disadvantage is the fact that it won’t be “your baby” any longer. Others will have a say in the direction of your business, which may be quite different from the initial vision you had when you started your company. The decision that you have to make is whether it is worth it to you to risk having your company grow by bringing others in to your business to help you grow in ways that you didn’t even dream of when you started?

Having a board also means that you must listen to their collective opinions about all of the major decisions in the life of your business. It’s not about you and you alone any longer. Therefore, in selecting members of a board, consider whether they have the temperament to be reasonable and to be able to work things out if there is a difference of opinion as there will always be. You must be able to work with each of them so it is better for you to start considering people whom you already know.

Unknown people are the biggest risks of all. In the worst case, board members could oust you as the CEO of your own company if you were deserving of this action (or even if not). When you structure how your board works, make sure that your operating agreement addresses this and many other critical issues of management, decision making, and strategy.

And what will be something that you need to tell each of these potential board members before they accept is that they will have fiduciary responsibilities to the company and not to you individually. This responsibility will mean that they could become personally liable if their decisions are questioned and found to violate this duty. This means that they have to do their best jobs possible in the interest of the company.

CONCLUSION: There are great benefits of having people who are smarter and more experienced than you to help you grow your business. And there are some significant drawbacks also but isn’t that true of all of life? The basic question is: are you a glass half empty person, or a glass half full person? If you are the latter, then the benefits may far outweigh the detriments.

Best of luck if you decided to go for it!!



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