Starting a new Business
This entry was posted on 5/16/2008 8:40 AM and is filed under Corporation.
Question:
My wife and I are starting a new business and we are in the process of forming a Corporation, listing ourselves as the sole officers and directors. We are preparing a business plan in order to obtain a loan from our bank. We would like to add to our Board of Directors some prominent members of our community. We have experienced some resistance due to their fear of personal liability. We have been told we should form a board of advisors and that would solve the problem. What do you advise?
Answer:
We agree that an impressive advisory panel would enhance your business plan. Notice we avoided using the term directors. It is important to structure the board in a way that it is clear that it has an "advisory role" only. All decision-making authority, power and legal responsibility still rests with the owners of the business and the formal Board of Directors elected by the shareholders, not the advisory board members. Larger companies provide insurance to protect their Board of Directors from liability. This cost for your small startup company would be unwarranted.
The makeup of your advisory board should have functional relevance to your company’s objectives. Experience in your industry, marketing capability and financial expertise are some of the skills the advisors could provide. This would not only benefit your business but would enhance the business plan being presented to your bank.
Your advisory board should have scheduled meeting dates and at these meetings the
Company’s progress and plans should be presented and discussed. These meetings should have an agenda with prepared information. The objective is to get your advisors feedback. Many advisory board members become directly involved in specific tasks, such as helping to sell a particular customer, evaluating marketing strategy and fund raising. Minutes should be taken and then presented to your formal Board of Directors for consideration. This will further substantiate the advisory group separation from the board.
You should pay a visit to a local SCORE office near you. We are sponsored by the US Small Business Administration. For locations on Staten Island go to www.score476.org We can address this matter in greater detail and also cover any other business question your may have. Our services are free and confidential and our volunteers have extensive experience in a variety of business ventures.
