Written by Michael Palermo of Palermo Business Law Firm
The price of outside funding may be ceding some control of your company—should you add an outside Director to your Board of Directors in order to get financing?
Many successful companies at some point face the question, “Should we add an outside Director to our Board of Directors?” It usually means your business is growing and new money is interested in investing with you and has asked for a seat on your Board in exchange for the investment.
The question is usually followed by, “What, exactly, is a ‘Board of Directors’ and what do they do?” All good questions. Let’s start at the beginning.
Two Layers of Authority
In North Carolina all businesses are run by their Board of Directors. This is by statute: “All corporate powers shall be exercised under the authority of, and the business and affairs of the corporation managed under the direction of, its board of directors…” This rule surprises a lot of the mid-sized business owners I meet, who think the president runs the company (themselves usually). Directors may delegate the running of the company to the officers, but the responsibility for most corporate decisions rests with the Board.
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