The Startup Checklist

11Recruit Your Boards of Directors and Advisors

Once your company is incorporated, you are legally required to have a board of directors. Its official purpose is to represent the rights and viewpoints of shareholders—you, as well as your fellow company owners. But the board of directors should also serve a number of purposes that can fuel and sustain your company's growth and long-term success.

Understanding the Composition of the Board

A company's board of directors is technically elected by the company's shareholders, so before a startup receives outside funding, the board is “elected” by, and usually consists of, the founders (for a tiny company with one or two founders, “the board” may exist in name only).

Once a company receives its initial seed, angel, or venture funding, there are now other owners of the company in addition to the founders. There are specific rules for determining who gets to make what decisions, because, although “ownership” at its core level implies “control,” it is possible to separate the two. Once your venture is incorporated, the ownership of the company is divided into millions of shares of common stock, and the fundamental concept is that each share gets one vote.

All of the shareholders then get together to vote for a board of directors to represent them in running the company. The board of directors hires a chief executive officer (CEO), who is charged with running the company on a day-to-day basis. The CEO then hires (directly or through ...