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Board of Director seat and fiduciary responsibilities

Rick Bigelow's Profile

What fiduciary responsibilities do board members have?  A client is starting a C corporation with an Advisory Board and some potential board members have questions about their respective fiduciary responsibilities, if any. Some board members will be investors, but not officers of the company.

Thanks in advance for your comments.

Rick

Answers

Raymond D Godeke
Title: Vice President - Finance
Company: California Scottish Rite Foundation
(Vice President - Finance, California Scottish Rite Foundation) |

Rick, are the Advisory Board members voting members?

Topic Expert
Rick Bigelow
Title: C0O
Company: LSSM
(C0O, LSSM) |

The seats are non-voting members.

Rick

Robert Hawn
Title: Partner
Company: Strategy Law, LLP
(Partner, Strategy Law, LLP) |

Rick:

Is your question about the fiduciary duties of members of an Advisory Board, or about the fiduciary duties of members of a Board of Directors?

Bob

Topic Expert
Rick Bigelow
Title: C0O
Company: LSSM
(C0O, LSSM) |

Initially I intended to ask about the fiduciary responsibilities of Board of Directors members. My question confused the situation with the use of Advisory. That said, we are undecided on whether to create a BOD or BOA and I would like to understand the fiduciary responsibilities of each. I am leaning towards a BOA. If we go the route of BOE, I need to understand the responsibilites of voting and non-voting seats.

Rick

Ken Ruotolo
Title: CFO
Company: In-between
(CFO, In-between) |

Rick:

Good article here on the topic: http://goliath.ecnext.com/coms2/gi_0199-4230522/How-liable-are-advisory-boards.html

If advisory board members only recommend, then fiduciary responsibility is minimal to non-existent. Craft a good advisory board agreement.

Members of the board of directors however, have fiduciary responsibilities de facto.

The only exception might be a non-voting member of the BOD (sometimes called an "observer seat"). They can contribute to discussion, but not vote on matters. Not sure about fiduciary responsibilities for this category. A question for your attorney.

Ken

Robert Hawn
Title: Partner
Company: Strategy Law, LLP
(Partner, Strategy Law, LLP) |

Generally, if the BOA is acting as a board of directors, there is a high degree of risk that the advisors will be viewed as directors, and therefore fiduciaries. Because the presence of fiduciary duties is highly fact sensitive and subject to more gray area than an adult pachyderm, it is critical that you discuss this issue with your corporation's counsel.

Bob

Philip Alford
Title: CFO Partner
Company:
(CFO Partner, ) |

As a C corp you will need a BOD. The incorporation documents normally spell out the number, meetings etc. The BOA is merely voluntary and has no authority to govern. I have never seen a C Corp with just a BOA. The risk would be in such a case that they are the defacto board. I would be talking to outside counsel about this.

Michele King
Title: CFO/PEO Operations Director
Company:
(CFO/PEO Operations Director, ) |

It's vital to take out a fiduciary insurance policy, that will cover these participants on the BOD. The cost isn't exhorbitant, and could save some costly headaches down the road.

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