What you need to know about startup boards by Samer Hamadeh

TL;DR - Boards of directors are typically organized in a standardized fasion and directors have duties they must satisfy.

Helpfulness - 3

Tags - board of directors, founders, common stockholders, fiduciary, financing round

Questions answered:

  • What is the typical structure of a board of directors?
  • What role do directors play in the management of a company?

Summary:

  • Every company is required to have a board of directors by law (one is allowed).
  • Most companies prefer to have an odd number of directors.
  • It is common to allocate a board seat to the firm/person who led the initial seed round.
  • A typical setup to allow founders to retain control of the board is to give common stockholders (founders) two board seats and new investors one seat.
  • New board seats are commonly allocated to the lead investors of each new round of investment.
  • An independent seat, someone with industry knowledge and helpful contacts, is usually designated following the second round of financing.
  • Board members are fiduciaries.
    • The fiduciary obligation of board members is to maximize value for all stockholders.
    • Board members must satisfy the duty of care and the duty of loyalty.

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