How to Create and Manage a Corporate Board of Directors
If you've structured your business as a corporation, you are required to have a board of directors. However, some businesses that are not corporations also elect to have a board, simply because having an active and helpful group of advisors and managers can give a business owner much-needed support.
A board of directors is an elected or appointed body of members who supervise the activities of the company according to the company's bylaws. How much or how little the board is involved is really up to the company; however, if the company is publicly held, the board must adhere to the rules and regulations stipulated in the Sarbanes-Oxley Act.
Normally, the board of directors is responsible for the following:
- Establishing and managing the objectives of the company, plus any overall policies and procedures that must be adhered to
- Appointing or selecting the CEO and other officers. In smaller companies, the board's director and the CEO might be the same person.
- Supporting the company by seeking out financial resources
- Approving the company's annual budget
- Setting salaries and other compensation
- Making sure all the interests of the shareholders are protected
- Creating, approving, and supporting the company's corporate bylaws
- Approving the sale of stock
- Calling and organizing the annual corporate meeting
- Making sure board minutes are recorded
- Calling and organizing any special meetings that are needed in addition to the annual meeting
- Making sure stock certificates are distributed to shareholders
A director can be an "inside" director, who is directly involved in the business on a daily basis and is employed by the company, or an "outside" director, who is a member of the board but is not employed by the company. An outside director usually serves as an expert resource to whom the company can look for advice and perspective. Sometimes an outside director can help settle disputes among board members more easily than someone who is closer to the situation. Board members must be prudent and honest about not having any conflicts of interest that could be cause for dissent within the company or among its shareholders.
What if you want to remove a board member? Once you establish a board of directors, it might be hard to remove a member unless you stipulate a removal procedure in your corporate bylaws. Make sure you set term limits for board members, and have an attorney go over the procedures so you can be sure that you're following the proper rules. Usually, a committee must review the situation, and then the board must vote to remove a member.
