• 3 min
• 08/30/2022

When starting a new business, you may be unsure of the exact role and duties your board of directors will assume - or if your business even needs one. It’s common for large, public corporations to have a board of directors. But what you may not realize is that a board of directors can be equally beneficial to a small, private company as well. While private companies are not required to have a board, they sometimes choose to have one because of the expertise individual board members bring in regard to strategy. 

Regardless of whether or not your company is required to have a board of directors, it will be beneficial for you to understand the role a board can play and the duties and responsibilities they may undertake for your business.

The Role of the Board of Directors

The first thing you need to know is that the board of directors will not oversee any of your company’s day-to-day operations - that’s a job for your upper management team. The board’s role will focus on making decisions and dealing with issues that are vital to your company's success.

This might include decisions on hiring or firing key personnel or ensuring the actions of your company are not in conflict with the interests of various stakeholders or members.

In addition to providing strategic guidance and oversight, a board of directors also has specific duties and responsibilities that will vary depending on your company's mission, its goals, and your industry. These duties and responsibilities will be set out in a formal company document like your company's operating agreement, articles of incorporation, or bylaws.

Fiduciary Duties of the Board of Directors

It’s important to note that a board of directors owes its primary responsibility to your company and its shareholders. This is known as a fiduciary duty. Fiduciaries are required to protect the best interests of the entity to whom they owe their duties. 

A board of directors' fiduciary duties must focus on the best interests of your company and its shareholders. What this means for your company is that your board’s decisions need be made with care and diligence, in good faith, and with the goal of protecting the company's best interests. Additionally, if they must avoid any situations that might place them in a conflict of interest with the company's interests.

Board of Directors Meetings

Your board of directors is required to have regular meetings in order to fulfill their role of making decisions concerning any issues facing your company. While it's generally important for all directors to attend all board meetings, a company’s bylaws often allow directors to attend either in person or electronically. 

There are some rules that the Board of Director meetings must follow:

• Quorum - This refers to how many directors must be present for a decision to be valid, it should be outlined in your company bylaws.
• Resolution - A resolution is typically drawn up once a decision has been made to document that decision. It should outline the decision and the actions authorized by the board to implement that decision.
• Meeting minutes - All board meetings’ minutes should be recorded, and contain descriptions of the issues discussed, decisions made, and actions that were authorized, or resolutions that were passed. 

Who Elects the Board of Directors

In a public corporation, the directors are elected by the shareholders at a shareholders' meeting. Private companies, however, can select their board of directors however they choose. 

Whenever a director resigns, another director needs to be appointed. The rules set out in the company's documents should indicate what happens if a director submits a resignation letter.