Setting up a Board of Advisors or Board of Directors can be one of the greatest keys to success for an entrepreneur. Having a Board of Directors or Advisors is a ‘support team’ to give encouragement, advice, and guidance regarding your vision and goals.
Face it, being an entrepreneur can be a lonely business. Don’t think your business is too small to implement this strategy. I love to discuss the ‘Board’ and the importance it plays in the life and success of an entrepreneur at any stage of business.
This ‘Board’ concept is an important tax strategy, legal strategy, and business strategy.
There are several reasons to hold a Board Meeting and important for every small business owner. Consider the following:
Reasons for a Board of Directors
- Get a Tax Write-off. First, from the point of view of a tax strategy, the existence of a ‘Board’ creates the opportunity for an excellent tax write-off. We all should be holding regular board meetings, if not quarterly, at least annually. This is an opportunity to deduct some travel and dining with your board as you discuss the status and condition of your business. Make plans and goals for the new year!
- Increase Your Asset Protection. Holding a Board Meeting is an excellent asset protection strategy because you should be having regular board meetings to substantiate your ‘corporate veil’ and this goes for even LLCs. Don’t think because you have an LLC you can skip all of these legal formalities. You should have a ‘corporate book’ where you keep your ‘Minutes’ from your regular meetings. If you are ever in a lawsuit, you want to be able to pull out your corporate or LLC records and show the court you have properly maintained your entity and had regular meetings and kept records.
- Be a Better Business Owner. Probably the most important reason for a Board of Directors or Advisors meeting is the business purpose of having a board to help guide you, give you encouragement, and at the least follow up and hold you accountable for your goals. The Board should be people you trust for a straight answer, but they won’t beat you up in the process. They could be family, friends, or even mentors you look up to in the business world.
How to Set up a Board of Directors or Advisors
The process to set up a Board is simple and straightforward. NO filing with the State or the IRS. You can name your board members when you form your Corporation, LLC, or simply create a ‘Board of Advisors’ when you’re in Start-up Mode with a Sole-Proprietorship.
- S-Corporation. With an S-Corporation it’s obviously called a Board of Directors and the provisions regarding their duties will be set forth in the ByLaws of the corporation.
- Limited Liability Company (LLC). If you have a Limited Liability Company, then it’s best to use the term “Board of Advisors”. In this instance, we create a provision for a ‘Board’ in the Operating Agreement of the LLC. If you are a partnership, or simply a Sole-Proprietorship, we also use the term “Board of Advisors”.
It’s a simple process if you didn’t create the ‘Board’ when you set up your entity. On your annual renewal date, you can appoint the Board with your normal process of doing your minutes.
Thus, you can create a Board of Directors or Advisors at ANY TIME by pulling out a piece of paper, holding a meeting. Make sure to document it as ‘minutes’, appoint the names of the people on the Board, and have the shareholders or members sign the ‘minutes’ and agree to serve on the Board.
Who Should Serve on the Board
There is NO liability for the Board Members so long as they are simply providing an advisory role and not making actual decisions regarding the operations of the company.
I LOVE to involve family members in the process. This is a great opportunity for the tax deduction strategy of hiring children or a spouse for tax strategy purposes. Also, a business owner can better use the travel deduction for legitimate board meetings for those serving.
Thus, it’s a great opportunity to get the family involved in business decisions, pass on a legacy of entrepreneurship and teach them what is actually going on in the business.
In summary, if you need help with your minutes and creating a board, consider or Company Maintenance Program (“CMP”) for support and annual services. The CMP Department can assist you if you need help writing your company minutes, catching up on your records, or establishing your Board. We have a Paralegal team at KKOS that can do it simply and affordably. Please check out the Company Maintenance Program here where you can take action to get started,
* To sign up for Mark’s weekly Free Newsletter and receive his Free E-Book “The Top 10 Best Tax Saving Secrets Everyone Should Know” visit www.markjkohler.com.
Mark J. Kohler is a CPA, Attorney, co-host of the PodCasts “The Main Street Business Podcast” and “The Directed IRA Podcast”, and the author of “The Business Owner’s Guide to Financial Freedom- What Wall Street Isn’t Telling You” and, “The Tax and Legal Playbook- Game Changing Solutions For Your Small Business Questions”, as well as several other well-known books. He is also the CFO of Directed IRA Trust Company, and a senior partner at the law firm Kyler Kohler Ostermiller & Sorensen, LLP, and the accounting firm K&E CPAs, LLP.