A board of directors is a group of elected members who oversee a company. It is often called just “the board”. What a board does is based on the powers and duties given to it. These duties are spelled out in the company’s bylaws. Bylaws also state the number of members the board should have, how they are chosen and how often they should meet. Each board member has equal voting rights.
Entrepreneurs should think carefully about who they put on the board. Your board is your judge, jury and executioner all at once. It will be involved in any big decisions the company makes. The people on the board will include: a founder, the CEO, a few venture capitalists (VCs) and outside members.
VCs invest money in the company. The money they invest buys them equity. Outside members are not employees or investors in the company. They are neutral but have business or technical knowledge that is helpful. Outside members also help to solve disputes between the founder/CEO and VCs.
Points to remember:
- The board can fire the CEO.
- Decisions the board makes are final.
- The board is an advocate, their advice can be very useful.
- Boards should have a founder, a CEO, investors and outside members on it.