All About Your Corporation's Board of Directors

Corporate Board of Directors
Corporate Board of Directors. Plush Studios/Bill Reitzel/Getty Images

Among the many tasks in incorporating a business, none is more important that selecting a board of directors. In this article, we'll look at the board, and the information you will need to select board members and guide them in their duties to help in your corporation. 

What is a Board of Directors? 

The Board of Directors of a corporation is the group of individuals who are charged with running the corporation.

The board of directors is sometimes called a board of trustees (for a non-profit corporation), board of governors, or executive board. 

How are the Board of Directors Selected? 

Selecting the board of directors is the job of the President/CEO of the organization, as the corporation is being formed. Board members should be selected for their ability to help move the corporation forward and provide oversight and guidance, not for friendship or political purposes. 

You may be asked by potential board members about payment. Paying board members is not a requirement; actually, it could be a potential conflict of interest. You can certainly pay board members for their travel expenses to board meetings; these expenses are deductible on your business tax return. 

What are the Duties of Board Members? 

The duties of the board of directors and officers of the corporation are set by the corporate bylaws but are also set by law, specifically by the laws of the state where the business is incorporated.

The primary duty of the board members is to care for the finances and legal requirements of the corporation. In addition, they must set the mission and vision of the corporation, and set policy for corporate officers and employees to follow. Board members do not participate in day-to-day operations of the company.

 

What Officers Should a Board Have? 

The board should have a board chairperson, a vice chair, a secretary, and a treasurer. The duties of each officer should be set out in the bylaws. Board officers should not be executives of the business itself, again because of conflict of interest principles. 

What Goes on at a Typical Board Meeting? 

Board meetings should follow a standard format, including use of Robert's Rules of Order or some variation. 

The meeting begins with approval of the minutes of the last meeting and review of the treasurer's report. If there are committee reports, these are presented. Then old business is discussed and voting is recorded in the minutes. Then new business is discussed and possibly voted on, before the meeting is adjourned. 

Board meeting minutes are taken by the secretary in a specific format. 

Some other issues to know about your corporation's board of directors: 

Liability and Corporate Board Members

If anything goes wrong in a corporation, the board members have several types of liability. They must act on behalf of the shareholders (no conflict of interest), and they must not co-mingle personal and corporate funds. 

Many boards formulate and agree on a conflict of interest policy, stating that board members cannot let personal interests influence their decisions on behalf of the corporation or its shareholders.

In addition, many corporations purchase officer and board member liability insurance, to protect the corporation against lawsuits against board members and also to prevent board members from being sued personally. 

Compensation of Corporate Board Members

Some corporations compensate their board members, with compensation based on the type and size of the corporation. Many corporations, particularly non-profit corporations, do not compensate board members but instead provide them reimbursement for travel expenses to board meetings and other corporate locations.

Board members of publicly traded companies may be compensated with stock options, but in any case the compensation of board members should not be so much that it is the primary incentive for individuals to agree to be on the board. 

Corporate Annual Meeting

One of the most important legal requirements of a corporation is to have an annual meeting of shareholders. The corporate board is responsible for the annual meeting, which usually includes an annual report of the state of the corporation. There are specific requirements for what must be included in the agenda for an annual meeting. 

Removing a Corporate Board Member

There are several ways to remove a board member. The best way is to have term limits, so members are automatically removed when their term is up. Other less pleasant ways to remove a board member are personal intervention and dismissal.