Idaho Business Law Does Your Business Entity Need a Board of Directors?

By Lane V. Erickson, Idaho Business Attorney

When it comes to using an entity as part of your business structure, there are many options to choose from. You can use a general partnership, or a limited partnership. Alternatively, you could use a limited liability corporation, or a regular corporation. Depending on the type of structure you choose, you will then have to go forward with establishing that structure and following all the legal requirements to make sure that it operates correctly.

The purpose of this article is to talk about the type of entity, and the circumstances that have to exist, where a board of directors is used in order to operate correctly. Please keep in mind that this article is just a summary. If you have questions or concerns about your business entity, and whether a board of directors is needed as part of that entity structure, we encourage you to contact us for a free 30-minute consultation where we can answer your questions and help you with your specific needs.

Not all business entities operate the same way. Some entities are chosen because they are simple and easy to use. Other entities are chosen because of the number of owners that are involved. It is wise to consult with a qualified business attorney to help you determine which business entity would work best for your business given your particular circumstances.

When it comes to using a regular corporation as your business entity, you have several things you need to accomplish. One of those is determining whether your corporation needs a board of directors. This decision would be based on the number of owners of the business and the size of the business itself.

The board of directors is the highest level of authority in controlling and operating the corporation. The board of directors is voted in by the shareholders or owners of the corporation. The size of the board will be determined by the number of owners of the business and the bylaws that were created for the corporation.

The purpose of the board of directors is to provide organizational structure to the corporation, determine what the goals and priorities of the corporation are, and to determine how best to carry out those things. To do this, the board may hire certain officers of the corporation including a CEO or president, as well as other officers who will be given specific duties and responsibilities associated with the corporation. This second level of management, controlled by the board, is then given the responsibility to accomplish the goals and priorities of the corporation.

If there is only one owner of the business, or if the owners of the business are a married couple, these individuals will fulfill all of the duties responsibilities of the corporation including being shareholders, officers, and potentially board members as well. Because of this, there is no need to necessarily formally organize a board of directors.

However, when there is a large organization including a number of shareholders, then a formal meeting must be called by the shareholders where they will vote in and the board of directors. Again, this process is controlled by the by-laws of the corporation.

The bylaws also control how long of a term the board of directors will serve in that position. It’s possible that the bylaws will allow a director who has been voted in to serve multiple terms. If a director chooses to resign, or if their term is up and they don’t have a right to renew or to serve successive terms, then the shareholders will vote in new board of director members.

It is also possible for the shareholders to remove a member from the board of directors if that person has done something they shouldn’t do. This can be done through a special meeting or the shareholders can simply wait for the regular meeting to occur where this business is taken care of.

If you are using a corporation as your business structure, and you have questions about whether you need a board of directors, we can help. We have assisted numerous business clients in creating their corporation, their corporate bylaws, and making sure that all corporate formalities are followed properly. We are confident that if you have questions we can help you too!

Our team of Idaho business lawyers can help you with any of your business structure or operation needs. Whether you are seeking to create a new business or review a current business, we are available to discuss your options and answer your questions at an initial free 30-minute consultation. Call us toll free at 877.232.6101 or 208.232.6101 for a free consultation. You can also email us directly at lane@racineolson.com or stop by our office at 201 East Center Street, Pocatello, Idaho 83201. We will answer your questions and help you solve your Idaho business problems.