What is the difference between a Board of Directors and Board of Advisors?
In short, the board of directors has the power to make decisions for the company while the board of advisors simply offer their advice and support to the board of directors.
What is a Board of Directors?
A board of directors can be one person or a group of people, and is the highest level of management and authority within any corporation. A company is legally required to have a board of directors. In most early stage start-ups, the board of directors is composed only of the founder(s) of the company. At the board level, voting power of a director has no relation to shares held. In fact, the director may not have any shares in the company they sit on the board for. In general, each director has one vote each. Due to the significant authority of each director, directors should not be added to your board in haste.
It should also be noted that directors on the board have personal liability exposure for the decisions they make.
What is a Board of Advisors?
Like a board of directors, a board of advisors can be one or more people. Unlike a board of directors, advisors have no actual authority in the company. An advisor can only give advice and lend support. Advisors do not have the authority to implement their own ideas within a company.
Having a board of advisors is not a legal requirement.
The personal liability advisors face in this role is limited, as they do not carry fiduciary duties.
What are the benefits of Having an Advisor for your Company?
An advisor can give your company serious competitive advantages.
An advisor can offer experience and expertise that you may be lacking. You can build a board of advisor based on subject matter specialties, to increase your decision making strength in those areas.
An advisor can open up their networks to you, giving you access to connections and opportunities you may have otherwise been unable to secure.
An advisor can give your start-up credibility to outside investors thereby increasing the chances of securing investment from friends, family, angel investors, and venture capital firms.
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.