If you’re considering forming a limited liability company (LLC), one key question you might have is whether you need to establish a board of directors. The short answer is no – an LLC is not legally required to have a board of directors.
However, implementing a board can provide some important advantages for your business. So, the exact answer depends on your specific goals, number of members involved, need for outside expertise, and a variety of other factors.
In this comprehensive guide, we’ll explore the pros and cons of having a board for your LLC, explain how they function, and help you determine if it’s the right path to establish legitimacy, robust oversight, and optimal growth potential.
A board of directors is a governing body elected by shareholders that oversees the major decisions and strategic direction of a company. Boards typically consist of inside directors (executives) and outside directors who provide independent perspectives. Their main responsibilities include:
For corporations, having a board of directors is mandatory. However, LLCs have more flexibility when it comes to management structure.
LLCs can choose between two primary management models:
In this default model, all members (owners) have an active role in day-to-day operations and decision-making for the business. Decisions require approval from a majority of members.
With this structure, non-member managers are appointed to oversee operations. The managers have the authority to make decisions and bind the LLC to contracts/agreements.
Either structure can work well depending on your LLC’s needs and number of members involved.
While not required, establishing a board of directors or board of advisors can benefit your LLC in several ways:
A board adds organizational formality, clear roles, and operating procedures – essentially running more like a corporation. This professional structure can lend credibility when dealing with investors, creditors, etc.
Outside board members provide objectivity, diverse perspectives, and guidance to help drive growth and profitability. Their expertise supplements the skills of members/managers.