Disclaimer: This video discusses general legal issues, but it does not constitute legal advice in any respect. This post is not a substitute for legal advice and is intended to generate discussion of various issues. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel. Cara Stone, LLP and the author expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this post. The views expressed herein are personal opinion.

As early-stage companies grow and take on outside investment, eventually, they will find themselves asked to form a Board of Directors. This post discusses the Board of Directors, its roles and responsibilities, and who typically fills these positions.

The Board of Directors (or Board of Managers in the case of an LLC) is a body put in place by the company to oversee the company’s management. The Board of Directors (“Board”) is the ultimate authority over the C-Suite. The powers of the Board can vary in detail, but in general, the Board has the highest authority in the corporation and can direct the C-Suite to take specific actions, make certain decisions, and ultimately (as seen recently in HBO’s Succession), the Board can make changes to personnel at the C-Suite level.

The Board’s composition will change as the company grows and takes on more investors. Typically, the Board is comprised of a mixture of high-level executives or early founders in the company, outside investors who have contributed significant capital to the company, and sometimes “mutual” experts agreed on by executives and investors who have some knowledge of what the company is doing and can contribute to the companies high-level planning.

With the Board’s high authority comes a great deal of responsibility. Board members have a duty to the shareholders to look out for the corporation’s best interest. Board members are not permitted to only look out for their self-interest or the interests of employees, vendors, or other non-owners of the company. The Board is there to look out for the best interests of all shareholders (meaning early-stage founders and new investors).

Understanding the roles and responsibilities of the Board is essential because it helps maintain a productive board dynamic. One of the ways the Board can go sideways is when Board members lose sight of their ultimate responsibility to the company’s shareholders and start to let other factors influence their decision-making.

The Board serves as a place to discuss the many tough decisions a company will face. A balanced board will provide dynamic discussion that guides the executive team. When there is too much agreement on the Board, an echo-chamber effect is created and can cause the company to make errors in judgment. Ultimately, the Board should provide debate and direction, not simply rubberstamp company decisions.

Founders new to a board setting should lean on the Board for advice and counsel, especially if the company is growing or facing critical decisions. We have discussed strategies (here) for positive board dynamics and board meetings. We also have a series of posts on the roles and responsibilities of a Board throughout the company’s life cycle.

Navigating Board dynamics is challenging for many first-time founders, but if run correctly, they can be a founder’s greatest asset. We would love to talk to you about how to structure the Board or any other questions on this topic you may have. Get in touch below.

The Board of Directors: Duty to Disclose