How many Directors should my Early Stage Company have?
Short Answer
Typically, 1 to 3 directors on its board for an early-stage company (we’d suggest an odd number to avoid deadlocks). Don’t be hasty to add to your board. You should protect your board as much as possible.
Don't look to stack the board in anticipation of future financing. Large and sophisticated investors will dictate how the board looks like anyway. So instead, build your board to be able to run the business effectively and efficiently.
Long Answer
For early-stage companies, smaller boards (e.g., 1 to 3 directors) are typically better. A smaller board can make faster decisions. It can also facilitate better accountability among each director. This encourages engagement in the company and more intimate knowledge of the business by each director.
Some founders believe that it’s best to have more directors in place prior to a financing, so that the founders can maintain control of the company for as long as possible. The rationale being that if the company has 3 directors prior to the financing, and an investor were to receive 1 director as a result of the financing, then those directors appointed by the founders would still maintain control of the board (i.e., 3 directors to 1).
However, large and sophisticated investors like VCs will typically dictate the composition of the board in a financing. For example, in a seed round, the following board structure is not uncommon:
(i) 1 director appointed by the founders;
(ii) 1 director appointed by the VC; and
(iii) 1 director mutually appointed by the founders and the VC.
As a result, focus on building your board to have the experience, vision and capability to best lead the company, as opposed to planning for control through significant financings.
Ink LLP is a business law firm that acts as strategic counsel to ambitious entrepreneurs, investors, and high-growth companies. Contact one of our lawyers to discuss your business and how our team might be able to help you tackle the challenges of your business and the opportunities for growth.
This information is provided for informational purposes only and is not legal advice.