Boards of directors are an important aspect of many businesses, but not all companies have them or are even required to have them at all. With that being said, among those without boards of directors, the question “Do I need a board of directors?” sometimes arises, and the answer is that it depends.
What does a board of directors do?
A company’s board of directors is a panel of individuals whose ultimate goal and responsibility is to make some of the most important decisions relating to the corporation and do what it can to ensure that its company is functioning as efficiently as possible.
Some of the issues that fall under the decision-making authority of a board include the following:
- The hiring and pay-setting of senior managers and executives
- The approval or denial of mergers and acquisitions of other businesses
- The establishment of rules of behavior and interactions between the board and executives
- Ensuring the quality, efficiency, and timeliness of any conducted audits
Boards of directors also approve all manner of corporate proposals and activities, such as:
- Amendments to bylaws or certificates of incorporation
- Equity grants, payments, and transfers
- Loans received or granted
- Annual budget adoptions
- Stockholder distributions
- Decisions relating to employee health plans
- Sales or distributions of company assets
- Dissolution of closure of the company
- Entering into contracts or other legally binding agreements that are materially important to the company
Keep in mind that a board of directors acts to protect a corporation from threats, both internal and external, and for that reason, it has extensive voting powers that help keep overreaching executives in check.
When is a board of directors mandatory?
Boards of directors are mandatory for all companies that are formed as public corporations. When a company or organization seeks to incorporate publicly, it must complete the appointment process of its boards of directors before the incorporation process is complete.
For private corporations, however, there is no requirement that there be a board of directors. Nevertheless, many private companies do indeed form their own boards of directors for various reasons, be they to create structure, add stability, or improve governance.
Private businesses also form boards when they otherwise do not need to for reasons related to objectivity and independence. Boards that display those qualities can help save companies from impassioned executives who may be blinded by ambition or some other force.
Does my business need a board?
First of all, if your business is not a public corporation, you do not necessarily need a board of directors, but having one, regardless of such, can prove extremely helpful.
Meet With a Lawyer for Guidance
To determine whether instituting a board of directors is right for your business, you should meet with an experienced business law attorney to discuss your plan. They will review your case and present you with information, guidance, and potential solutions if they take you on as a client.
Growth Is a Factor
If you anticipate that your business will grow as it moves into the future, many legal and business professionals will agree that your company should have a board of directors, regardless of its size. They believe that the insight, oversight, and accountability that boards offer are essential for the growth of any type of business.
Still, the decision to institute a board is ultimately yours, and it is one that is made on a case-by-case basis. Businesses that are not required to have boards but institute them all the same will likely gain some benefits in the areas of stability, accountability, and growth.
A Business Law Attorney Can Help
Our business law attorneys at Levy Goldenberg can help you sort through any business law issues you are facing and answer your questions. Reach out for a consultation to discuss your case today.