Reading time: 5 minutes

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.

Webinars

Redundancies and Restructuring: Understanding Your Employer Obligations

Thursday 7 July | 11:00 - 11:45am

Online
If you plan on making a role redundant, it is crucial that you understand your employer obligations. Our free webinar will explain.
Register Now

How to Sponsor Foreign Workers For Your Tech Business

Wednesday 13 July | 11:00 - 11:45am

Online
Need web3 talent for your tech business? Consider sponsoring workers from overseas. Join our free webinar to learn more.
Register Now

Advertising 101: Social Media, Influencers and the Law

Thursday 21 July | 11:00 - 11:45am

Online
Learn how to promote your business on social media without breaking the law. Register for our free webinar today.
Register Now

Structuring for Certainty in Uncertain Times

Tuesday 26 July | 12:00 - 12:45pm

Online
Learn how to structure to weather storm and ensure you can take advantage of the “green shoots” opportunities arising on the other side of a recession.
Register Now

Playing for the Prize: How to Run Trade Promotions

Thursday 28 July | 11:00 - 11:45am

Online
Running a promotion with a prize? Your business has specific trade promotion obligations. Join our free webinar to learn more.
Register Now

Web3 Essentials: Understanding SAFT Agreements

Tuesday 2 August | 11:00 - 11:45am

Online
Learn how SAFT Agreements can help your Web3 business when raising capital. Register today for our free webinar.
Register Now

Understanding Your Annual Franchise Update Obligations

Wednesday 3 August | 11:00 - 11:45am

Online
Franchisors must meet annual reporting obligations each October. Understand your legal requirements by registering for our free webinar today.
Register Now

Legal Essentials for Product Manufacturers

Thursday 11 August | 11:00 - 11:45am

Online
As a product manufacturer, do you know your legal obligations if there is a product recall? Join our free webinar to learn more.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Mia Herrman
Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards