Setting up a “Board” can be one of the greatest keys to success for an entrepreneur. Face it, being an entrepreneur can be a lonely business. Having a Board of Directors or Advisors will be a ‘support team’ in many ways; giving encouragement, advice, and guidance regarding your vision and goals. Don’t think your business is too small to implement this strategy. I love to discuss the ‘Board’ and the importance in 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.
- 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, dining and entertainment with your board as you discuss the status and condition of your business, and of course, plans and goals for the new year. Now, I’m not saying you can write-off 10 days in the Cayman Islands, but you can certainly write off a couple days of travel getting to and from your meeting.
- Next, it’s 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.
- Probably the most important reason for a Board of Directors or Advisors, is the business purpose. 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.
The process to set up a Board is simple and straight forward. 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 your in Start-up Mode with a Sole-Proprietorship.
With a Corporation, whether an S-Corp or C-Corp, it’s obviously called a Board of Directors and the provisions regarding their duties will be set-forth in the ByLaws of the corporation. If it’s a Limited Liability Company (LLC), then I use the term “Board of Advisors”, and create a provision for it in the Operating Agreement of the LLC. If you are a partnership, or simply a Sole-Proprietorship, I again 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. You can also create a Board of Directors or Advisors at ANY TIME by pulling out a piece of paper, hold a meeting, document it as ‘minutes’, appoint the names of the people on the board, have the members sign the ‘minutes’ and agree to 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 also LOVE to involve family members in the process. This is a great opportunity for the tax deduction strategy I stated above. Travel at the same time you enjoy legitimate dining and entertainment as a family. During this time you will hold an organized board meeting, weekend retreat and/or training. It’s a great opportunity to get the family in the mix of business decisions, pass on a legacy of entrepreneurship and teach them what is actually going on in the business.
If you need help writing your company minutes, catching up your records, or establishing your board, we have a Paralegal team at KKOS that can do it simply and affordably. Please check out Company Maintenance Program here where you can take action to get started if you need the support.
Mark J. Kohler is a CPA, Attorney, Radio Show host and author of the new book “The Tax and Legal Playbook- Game Changing Solutions For Your Small Business Questions” and “What Your CPA Isn’t Telling You- Life Changing Tax Strategies”. He is also a partner at the law firm Kyler Kohler Ostermiller & Sorensen, LLP and the accounting firm K&E CPAs, LLP. For more information visit him at www.markjkohler.com.