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An advisory board is a group of qualified specialists within an industry or between industries who can provide specialised guidance for your business. They also provide guidance and encouragement to a business’ directors, shareholders or owners. An advisory board may suggest strategic organisational advice. The structuring and management of an advisory board has flexibility as it does not make decisions like a formal board. However, if the advisory board has a governance role, this will not remove its members’ legal duties.

This article will explain the role of an advisory board, its benefits and steps to setting up an advisory board.

Role of an Advisory Board

An advisory board will commonly meet two to four times each year or whenever necessary. They generally cover the business’s strategic direction, growth plans, and other functional business needs. An advisory board will tailor its activities and agenda to a business’ evolving needs. This generally relates to the business’s key strategic plans and goals, rather than daily management or operational aspects. After discussing all relevant issues, you should format advisory board proposals in minutes.

Benefits of an Advisory Board

An advisory board can provide significant support to a business as a sounding board for independent guidance and overall mentorship. Since advisory boards commonly have no financial interest in the relative business, there is greater assurance of objective recommendations. It is additionally possible to establish an advisory board that features investors. 

Additionally, it is common for startups or small businesses to initiate advisory boards. They assist startups to build an ongoing supportive relationship with experienced professionals. Medium and larger businesses may also utilise advisory boards to promote their board of directors. It also allows access to impartial, third-party advice for assurance of decision-making and business development strategy.

Steps to Set Up an Advisory Board

To establish an advisory board for your company, you will require a Terms of Reference. This document acts as a constitutional document to set out operational instructions and requirements. It is important to ensure that this Terms and Reference protects the confidential nature of the advisory board relationship. This protects your business from unauthorised information sharing. Every advisory board member should receive and consent to a document that outlines a role description and expectations.

Legal Issues Associated With an Advisory Board

Advisory board members do not preserve any formal decision-making powers over the business. However, directors must still exercise care and diligence when considering their recommendations. A director may breach the Corporations Act 2001 (Cth) and be liable to penalties if it relies entirely on an advisory board’s advice. 

Additionally, advisory board members may also be deemed a “de facto” or “shadow” director if there is undue influence over a director. Should this occur, members of the advisory board can accept similar legal duties as official company directors. Likewise, they can be liable for these same penalties if they do not fulfil directors duties. Speak with a business lawyer if you are uncertain whether an advisory board member is acting as a shadow director. If you are operating through an incorporated company structure, your board of directors should continue with due diligence upon any advisory board recommendations.

Key Takeaways

An advisory board presents a significant opportunity for many businesses. If your business is seeking steady mentorship to support your longer-term business strategy, an advisory board is a good option. Advisory boards enable access to an ongoing network of skilled and experienced professionals to guide your business in your intended direction. It is essential to ensure that you have a clear Terms of Reference to ensure that all advisory board members have a sound understanding of their responsibilities to support your business needs. Undue influence by advisory board members may determine their “de facto” or “shadow” director status. If this occurs, advisory board members may be liable as though they were directors.

If you would like to know more about advisory boards, contact LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What is an advisory board?

An advisory board is a group of qualified specialists within an industry or between industries. They can provide specialised guidance for your business. They also guide and encourage a business’ directors, shareholders or owners.

What is a Terms of Reference?

A Terms of Reference is a constitutional document that sets out operational instructions and requirements of the business. A clear Terms of Reference ensures that all advisory board members have a sound understanding of their responsibilities to support your business needs.

What does “de facto” director status mean?

An advisory board member can be deemed a “de facto” or “shadow” director if there is undue influence over a director. It is vital to remember that advisory board members do not preserve any formal decision-making powers. Therefore, directors must be careful and diligent when considering their recommendations.

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