Serving on a Board of Directors – Part 1 – Know What You’re Getting Into

So, you’ve been asked to serve on a Board of Directors.  If this is the first such invitation, your initial instinct is to be flattered and accept the appointment if for no other reason than it feels good to have people think so highly of you that they want you to serve on their Board.  However, before you rush into this decision, you need to recognize that Board appointments carry with them substantial responsibilities, and in some cases, substantial exposure to personal liability.  Given that fact, you should not rush into such a position.

Here are a number of things to consider and questions to ask before accepting a Board appointment:

• What is the nature of the company’s business?

• What is the company’s reputation and that of its founders, officers, directors, etc.?  Is it a good thing for you to associate yourself and your reputation with this company and those people?

• Do you have any specific knowledge or expertise to contribute to the Board?  In that regard, will you be expected to serve any specific roles on the Board or its committees?

• What is the status of the company from a business, strategic, capital, financial and legal standpoint?  Are you stepping into a good situation, a bad situation, or something in between?

• Who are the other Directors?  Who are the officers?  Have you spoken with them about the company and the Board?

• Who are the company’s service providers – lawyers, accountants, bankers, investment bankers, etc.?  Have you spoken with them about the company?

• How often will the Board meet, and where?

• Will you have the necessary time to devote to the position?

• Will you receive compensation for serving on the Board?  If so, will it be in the form of cash, stock, other?

• Will you be entitled to reimbursement of your expenses?

• Are you expected to buy stock in the company?

• Does the company maintain D&O insurance?  If so, in what amount, and for what types of occurrences?

• What do the company’s governing documents say as to Director indemnification?  Will the company enter into a specific indemnification agreement with you?

These are just a few of the questions you should ask and issues you should consider prior to agreeing to serve on a Board.  In part 2 of this article, I will discuss the specific legal duties and responsibilities that Directors have and what those mean from a practical standpoint.

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