Boards: How They Work & Why You Need One
Entrepreneurs and CEOs alike often contemplate: who do I want to be a part of my company? All of the people that are brought in will have an impact, whether it is with the day-to-day operations or long-term strategy and growth. Boards allow you to leverage the experience and knowledge of qualified individuals to help your business become successful.
A board is a group of people who have the duty of meeting together regularly to provide oversight and decision-making for important matters in a business. They examine the activities, events, and potential issues that a business faces, and work to advance it towards success.
In this article, we will define what a board is and explore why boards are an important aspect of building a successful business.
What do boards do?
Boards have an ongoing responsibility to help your company succeed and reach its highest potential. Boards do this by advising on topics such as the business’s current issues, important decisions, and future plans. Boards will commonly implement rules and processes to stay focused in a particular direction and vision for the business. Although the number of people on a board can vary depending on the size or type of the company, Union Kitchen Accelerator members have a board of five people including themselves as Chair. To start, three members will have a seat on the board. The two vacant seats will be filled as the company grows.
As mentioned, boards help make important decisions for your business. They are in place to help keep the business aligned towards its goals through processes similar to checks and balances. There are several decisions that require approval from the board. These include:
- Adding new board members or bringing on investors for your business
- Obtaining new investments
- Deciding the annual budget
- Decisions outside of the annual budget
- Executive salaries
- Liabilities over $25,000
- Long-term strategic goals of your business
What is the structure of a board and its relation to the business?
With all of this information, you may be wondering, what kind of people are on a board? Most importantly, they are people who have extensive leadership experience, expertise in the industry, and are committed to the goals and mission of your company. You, the founder, are the chair along with any additional co-founders as applicable. People on your board act as advisors who will support the business by making key decisions.
Board members’ titles will vary and are not organized in this same way as the traditional personnel in a business. A board serves as an excellent addition to the people that already make up part of your normal business structure. There are several different structures in which businesses are classified. Common types of business structures include a sole proprietorship, limited liability company (LLC), partnership, and corporation. Detailed information on these structures can be found here: Common Business Structures - SBA. At Union Kitchen, we recommend that your business be structured as an LLC. LLCs establish a legal entity to take on these risks, rather than taking on the risks of owning assets, debts, and liabilities yourself. Additionally, LLCs allow you to have a choice in the way in which you are taxed and are less restrictive for how you want to operate your company.
Board members tend to have equity in the company to create further buy-in, as they have most commonly invested in the company. This further illustrates the fact that board members are highly interested in concentrating their efforts to help the business succeed. The equity that board members have in the business can vary.
The importance of having a board cannot be understated. Your board members provide a great deal of value to your company with their in-depth experience and knowledge. They want to see the company succeed and will contribute heavily to making this happen. With their additional viewpoints and collective experience, impactful business decisions can be achieved. Boards can be especially effective for young companies who are looking to build and grow. Since you are the CEO of your company, you will be the Chair of the board. You are responsible for bringing on people that you believe will help you achieve success and positively affect the future of the company.