Lane Report

But first, an advisory board
But before an entrepreneur is in the
position to begin considering if they
want to take on an investor’s money –
and the oversight of a board of directors
– Clause also suggests that they have a
formal or informal board of advisors, or
an advisory board.
“You are not required to have a board
of directors with an LLC. Most of the businesses
I’ve worked with, though, do want
some sort of an advisory board because
they want someone that has an interest in
their business that they can use as mentors
or experts in a particular area,” he said.
“Most businesses starting out, if they are
going to have an external group helping
them, will want to start out with a board of
advisors, and that is an informal advisory
group. It doesn’t require any legal relationship
with the venture.”
Christopher Clifford,
PhD, the Phillip Morris
associate professor of
finance with the University
of Kentucky Gatton
College of Business and
Economics, agrees that
having access to an advisory
board is invaluable,
especially with a young
startup company. The
challenge to the entrepreneur,
however, is the
required legwork to find
the people who will be
of real benefit to the
company.
Christopher
Clifford, PhD,
Phillip Morris
associate
professor of
finance,
University
of Kentucky
Gatton College
of Business and
Economics
“Finding good people who are willing
to sit on your board for probably pennies
– to justify their time – it’s very difficult to
do,” Clifford said. “There’s not thousands
and thousands of qualified directors just
sitting around retired, waiting to jump on
boards. It’s really difficult, in my opinion,
to form a good quality board.”
As with a board of directors, an advisory
board, even if it’s just a small group
of professionals who meet only a few
times a year to talk about the company,
can be extremely beneficial to a small
company when the business goes
through any number of transitions,
from an acquisition to a succession to a
younger family member.
“A board could provide continuity
from that one generation to the
younger generation,” Clifford said, “and
provide guidance drawn from past experiences:
‘This is what’s worked in the
past, we ran into this problem four years
ago.’ If you’re coming in to take over
the business, having that continuity of
information from one generation to the
next would be valuable.”
Along, of course, with articles of
incorporations that are filed with state
officials, the typical process includes
adoption of corporate bylaws declaring
the powers of directors, length of members’
terms, frequency of meeting,
appointing and dismissing a chairperson,
vacancy protocol and compensation.
A board of directors agreement
might be appropriate. Meetings should
have an agenda and minutes kept. ■
Robbie Clark is a correspondent for The Lane Report.
He can be reached at editorial@lanereport.com.
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