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- iHaveNet.com: Small Business Guide
Real Small Business
If you have chosen to organize your company as a corporation, you may be legally required to have a board of directors. Whereas your management (i.e. CEO and president) oversees the daily decision making of your company, your board guides the overall direction of your company.
The size of the board you must have varies by state, but the number of directors on the board cannot exceed the number of corporate shareholders, and in many states a board must be comprised of no fewer than three people. The CEO and president of a small business report to the board of directors, who can, in some cases, vote them out of the company or override their decisions. In many cases, however, the president or CEO owns a bulk of the company's stock, limiting the power of the board to override their decisions.
Large public companies pay directors for their membership, but small companies are more likely to provide board members with an interest in the company or just a free lunch or dinner when the board meets.
When you are creating a board of directors, you must decide on an "inside" or "outside" board. An inside board is comprised of friends, family, and contacts you trust, and is what most small business owners form first. An outside board is made up of people you recruit based on their skills because you need them to expand your business. If your company is looking for an acquisition, or thinking about an Initial Public Offering (IPO), you may need talent that you can only get from an outside board of directors.
If your business is not incorporated, you may want to form a board of advisors. An advisory board is more informal than a board of directors in that it generally does not have regular meetings, and even in larger companies advisory board members are often not compensated for their services. An advisory board is also not usually authorized to oust a CEO and is created primarily to provide business advice to a company.
Tips on putting together a board of directors
Create a board of directors that complements existing management
Look for people who bring new areas of expertise to your company. For example, if you own a small technology company but don't have any marketing background, search for board members who can provide the marketing experience you need.
Chart your management needs
Create a chart to determine the kind of talent needed to move your company ahead. List the skills your management possesses. You can then make a list of the skills sets you need to acquire and the people who possess those skills.
Use a headhunter for your board of directors
Some executive recruitment companies specialize in recruiting directors and management professionals/executives. For a fee they will locate board of director candidates for you. If you choose this route, keep in mind that the search firm must have a good understanding of you, your company, and the talents you seek in order to be able to recruit effectively for you.
Use your network of colleagues and friends
A well-rounded board of directors can be formed from your former school mates, vendors, professional service providers and social acquaintances. Make a list of candidates from this field and then vigorously scrutinize the list to ensure you are choosing the right talent for your company, not just people you like.
Keep your board of directors size manageable
The smaller your board, the more efficiently it is likely to operate. Unlike large companies that recruit high-profile board members to enhance corporate image, the board of a small company is usually a working board. The exception to this rule is if your small company is going public and needs a larger board to guide you through the process.
Make sure the CEO contacts board of directors prospects
Once you have identified board member prospects, the CEO should call those individuals. If you are the CEO, you should explain who you are, provide details of the corporation, how the individual's name came to your attention, and state that you would like to have an appointment to talk about possible participation on the board.
Look for people who know how to raise capital
Even if your company does not need to raise capital now, it most likely will at some stage. Board members who have a strong financial background and knowledge of how to raise money are always an asset.
Small Business Guide
- Starting Up Your Business
- Coming Up With a Winning Business Idea
- Common Startup Mistakes
- The New Rules for Startups
- Business Incubator FAQs
- Naming Your Business
- Researching Your Business
- Your Personal Savings
- Registration, Licenses, and Permits
- Getting a Tax ID Number
- Fast-Growth Startup Resources
- Structuring Your Business
- Overview: Corporations
- State Offices of Incorporation
- Incorporate Out of State?
- Writing a Partnership Agreement
- Choosing a Board of Directors
- Basics of a C Corporation
- Basics of an S Corporation
- Basics of an LLC
- Basics of a Sole Proprietorship
- Basics of a Non-Profit Corporation
- Basics of a Professional Corporation
- Basics of a General Partnership
- Basics of a Limited Partnership
- Your Company's Public Relations
- Elements of a Successful Public Relations Campaign
- How to Use Your Press Coverage Effectively
- Press Releases
- How to Write a Successful Press Release
- Sample Product/Service Press Release
- Sample Commentary Press Release
- Sample Event Press Release
- Sample Tips Press Release
- Sample Personnel Press Release
- Effective Competitive Analysis
- Managing Purchasing to Maximize Cash Flow
- Top Six Pricing Mistakes Businesses Make
- How to Avoid Lowering Your Prices
- Bidding Basics
- Hiring Staff
- Creating an Effective Job Description
- Do You Know How to Pick Them?
- Little-Known Hiring Resources
- Classifying Contract Workers
- Tips for Successful Interviewing
- What You Can't Ask in a Job Interview
- New Hire Paperwork
- Small Business Insurance
- Types of Insurance for Small Businesses
- Small Business Insurance FAQs
- Insurance Resources for Small Businesses
- Home Office Insurance: Myths & Realities
- Small Business Resources
- Government Resources for Small Business on the Web
- Resources for Women Entrepreneurs
- Fast-Growth Startup Resources
- Small Business Security Resources
- Taking Time Off
- Your Pre-Vacation Checklist
- How to Take a Vacation
- Learning to Delegate
- Getting Away When You Can't Get Away
- Preparing for Tax Season
- Year-End Planning Tax Savers
- 10 Ways to Pay Less in Tax
- 25 Common Business Deductions and Expenses
- Avoid These Common Errors and Audit Triggers
- Understanding the Home Office Deduction
- Corporate Income Taxes Primer
- Employment Taxes Primer
- Sales Tax Primer
- Sole Proprietorships and Partnerships Tax Primer
- How to Get a Filing Extension
- Year-End Reconciliation
- Getting the Most from Your Accountant
- Developing Accurate Financial Projections
- Cash Flow
- 10 Ways to Help Increase Your Cash Flow
- Cash vs Accrual Accounting
- Bookkeeping and Record Keeping Basics
- Quick Ways to Get Through a Cash Crunch
- Projecting Cash Flow
- Cash Flow Triage
- Getting Funding
- Cash Flow Through Factoring
- Small Business Investment Corporations (SBIC)
- Traditional Funding Sources
- Non-Traditional Funding Sources
- Your Company's Credit
- How to Read a Business Credit Report
- Credit Terms Glossary for Your Small Business
- How to Protect and Improve Your Business Credit Rating
- Give Your Business the Financing Edge
- Employee Compensation
- Employee Benefits
- Bonuses: How To Be Fair
- Workers' Compensation Q&A
- Keeping Workers' Compensation Costs Down
- Payroll Management Choices
- Key Elements of Payroll
- Working with a Payroll Service Provider
- How to Create a Business Plan
Starting Your Own Business - Choosing a Board of Directors
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