Every company should have a Board of Directors. At the start it can simply be a one-person board consisting of the founder. But it should not stay that way for long. Because if you are your own board, you won’t get any of the benefits that come with having a board. These benefits include, but are not limited to, advice, counsel, relationships, experience, and accountability.
The shareholders elect the Board of Directors. But there is usually a nominating entity that puts directors up for election by the shareholders. If the founder controls the company, then she is usually that nominating entity.
I am a fan of a three-person board early on in a company’s life. I generally recommend that a founder put himself on the board along with two other people he trusts and respects. The election of directors in this scenario is simply a matter of the controlling shareholder voting them in.
This situation changes a bit when investors get involved. If the founder retains control, then the situation does not have to change. The founder can still nominate and elect the directors she wants on the board. However, investors can and will negotiate for a board seat in some situations. This is less common for angel investors and more common for venture capital investors.
The way investors negotiate for a board seat is usually via something called a shareholders agreement. This is an agreement between all the shareholders of ...