This is the 1st article in our 5 part series about advisory boards. The 2nd explains why you may have an advisory board, the 3rd discusses how to select the board, the 4th explains the difference from a Board of Directors, and the 5th explains the legal documents required.
Perspective, judgment and vision are three skills that will set a business leader apart. As a busy owner of a new business, you are required to focus on the day-to-day operations. How can you get big-picture advice?
Smart new businesses are appointing advisory boards, to benefit from the wisdom of a panel of independent experts, without the formality or the risk of appointing directors.
What is an advisory board?
An advisory board is an informal panel of people who give non-binding strategic advice to the owners and founders of a business.
Who can be on the advisory board?
Advisory board members can be from any industry and any level of experience. It is up to the founders(s) who you choose.
It is wise to choose people who can assist you to grow your business. This may be because they have built their own successful business, or because they can introduce you to companies and people that you can do business with to grow your business.
It is sensible to choose people with different skills and different perspectives to you and your co-founders.
How many members?
You want sufficient members to get a suite of advice, but not so many members that the advisory board becomes unwieldy, with too many differing opinions, or because it is administratively difficult to find a time to meet. Having 2 to 4 advisors may suit a smaller business, and this can expand if needed.
What are the costs?
The members of the advisory board are generally not paid in cash. If you have a good relationship with the advisors, they may be willing to act for free. Other advisors maybe willing to be on the advisory board if they see a strategic relationship between your and their business, for example cross-referrals. If there are particular advisers that you want on the advisory board, you may offer them a small amount of equity. If you do this, it is wise to have a contract in place that sets out the rights and obligations of the advisory board member, and what shares they will receive.
The key legal cost is a well-drafted Advisory Board Agreement to set out the roles, expectations, and legal protections for the advisory board members. This benefits both the company and the advisors.
How often will the advisory board meet?
It is important to meet regularly to keep your focus and the advisor’s interest. Quarterly meetings are common.
How long will the advisors be involved?
You need your advisory board members to commit to a period to be able to get to know your business and add value. A 2 to 3 year period is common.
In conclusion, an advisory board is relatively easy and inexpensive to set-up, and could provide significant benefits in keeping you and your co-founders accountable and inspired. If you would like one of LegalVision’s experienced commercial solicitors to help you draft an Advisory Board Agreement