Do Not Underestimate the Importance of Building the Right Board

1. the Importance of Building
the Right Board
Tom Walker
DO
NOT Underestimate

2. An ENGAGED and CONNECTED board of directors is one of
the best tools an entrepreneur has for building an
OUTSTANDING company.
But building the “right” board isn’t automatic—
especially if you haven’t done it before.
Here are some things to know.

3. The requirement
to establish a
board depends
on the company’s
legal
structure.
State law in all fifty states
requires corporations and S
corporations to have a board
of directors. LLCs are not
required to have a board, but
may choose to have a board of
managers or one manager.
Boards of advisors have no legal obligation.

4. youwill choose members of your board.
Prior to outside investors, the board role is more advisory than
governance. Who you select is up to you.
Don’t limit yourself to friends and family.
Consider individuals who bring skills and
relationships that you don’t have. Consider
members who may stay on the board long term,
even after outside investors come in.
As the company founder with no outside investors,

5. Once you receive outside funding,
“investor’s rights” in the term documents will
likely require board seats.
Investors typically will take one to
two seats on your board.
For angel investors, the board seats often go to
angels who participated directly in the due
diligence process, hopefully people with whom the
entrepreneur has developed a good relationship.

6. Boards of directors have
legal responsibilities.
Ask your attorney to help you understand the fiduciary duties
of a board, which include duty of care and duty of loyalty.
Duty of loyalty
requires that boards act in the
interest of the corporation and not
their own interest or the interest of
any other entity or person.
Duty of care
requires that boards act
based on all available and
material information.

7. Boards of directors
determine CEO compensation.
They HIRE and FIRE CEOs.
Enough said.

8. recognize that boards can be
amazing advocates, that they
have relationships and
connections that can accelerate
a startup’s growth, and that
the “right” board is an asset
that doesn’t show up on the
balance sheet.
The most
outstanding
entrepreneurs