Why every start-up needs a board of directors?

Startups are no longer the small ventures trying to establish bigger ones but the dynamic and innovative players that can disrupt traditional industries.

However, as your startup grows, it requires proper leadership, guidance, and expertise. A board of directors can fulfill all your needs and help your startup grow.

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This article will cover the needs of a startup board of directors, their roles, and how to build an effective board.

Table of contents

What is the board of directors for UK startups?

Your startup may have a single director in its initial years. But as the business grows, they may not have sufficient time to cover all responsibilities.

In such cases, you should appoint a board of directors, each handling their unique responsibilities for specific business sectors like human resources, sales and marketing, and IT.

When you appoint a board of directors, you must clearly define their reporting structure. For example, the sales and marketing team must report to a sales and marketing director.

By having a clear board structure, your shareholders and employees can understand the individual directors’ roles. Therefore, they can meet the right people on board whenever there’s a problem in your company.

Who should be start-up board of directors?

When establishing a startup board of directors, you must focus on numerous factors. Individuals on the board must be people with significant expertise, experience, qualification, and diversity.

Firstly, it is essential to have founders or key executives in your business who have in-depth knowledge and expertise in similar industries. It ensures they have a strong understanding of your market dynamics, target audience, and competitive landscape.

Secondly, these individuals must be experienced in legal, financial, and operation sectors to guide you strategically and ensure compliance.

Furthermore, diversity is essential in any profession as it brings different perspectives, ideas, and networks to the table.

Why do startups need a board of directors?

​Startup board of directors’ responsibilities are huge, especially in the governance and management of your startup. It is a collective body of talented individuals with multiple responsibilities and power contributing to business growth and success.

Here comes a question: does every startup need a board of directors?

The answer is yes, but not mandatorily required. However, having an expert team with exceptional knowledge backing your startup can bring surprising results. Usually, new companies in the UK need a small board with 3 or 4 directors.

Here are a few reasons why startups in the UK need to establish a board of directors.

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●    Experience and expertise

Startup boards work with individuals who bring a wealth of experience and expertise to the table. Their diverse background and skills open up new business perspectives. Additionally, they can help you with specific industry knowledge, strategic planning, financial management, and legal compliance. The overall wisdom of the board can help startups avoid common mistakes and seize multiple growth opportunities.

●    Objective decision-making

Most UK startups are driven by passion and high ambition. However, these alone can sometimes lead to subjective decision-making. It is when a board of directors can help you with external viewpoints and balance your emotions with their rationality. Thus, they ensure objective decision-making contributing to sound judgment, impartial evaluations, and reasoned choices.

●    Enhanced credibility

The role of board of directors in a startup is to add credibility and legitimacy to your business. They signal to investors, customers, and shareholders that your startup has a well-rounded governance structure and is committed to responsible business practices. It further helps secure investments, attract talents, and forge strategic relationships. All this together contributes to the startup growth trajectory.

●    Access to networks

An effective startup board often possesses extensive industry networks and connections. Their relationships can offer invaluable access to potential investors, key industry leaders, and potential customers. When you have these individuals at your back, you can open doors to new opportunities that otherwise were impossible. Altogether, they can accelerate your business development initiatives.

●    Accountability and guidance

They develop a framework of accountability for startups, ensuring sound decision-making and risk management. They help you get valuable insights into current plans and focus on long-term business goals. They can offer expert guidance and mentorship based on their experiences.

●    Regulatory compliance and risk management

These individuals help startups to comply with industry standards and regulations. The board of directors establishes a robust corporate governance structure, monitors risk, and implements adequate internal controls. Thus, they help you avoid legal and reputational risks that may lead to costly penalties and severe consequences.

Role of executive directors and non-executive directors in startups

Executive director

The executive director of your startup is an agent appointed by the shareholders to manage your day-to-day affairs. They are personally liable for malpractice in your startup and must fulfill the following seven duties.

  • Act within powers
  • Promote the company’s success
  • Exercise independent judgment
  • Exercise reasonable care, skill, and diligence
  • Avoid conflicts of interest
  • Not accept benefits from third parties
  • Declare interest in proposed or existing arrangements with the startup.

Non-executive director

Non-executive directors of a startup are appointed at Companies House and have no interest or involvement in your company. They can look at issues impartially that the founding team is currently facing.

They provide a fresh perspective, prioritize which task to fulfill first, and make any decisions in the interest of your company rather than personal advantage.

They have experience and expertise in your industry and can help you connect with industrial leaders in the market. Additionally, they add credibility to your startup, increase your value, and help you gain investments or funds.

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Most startups begin with a small group of like-minded people; establishing a board of directors is an essential step toward sustainable growth.

The UK business sector demands the oversight, expertise, networking, and accountability that a board of directors brings.

You can establish a diverse and experienced board of directors to get access to their guidance for navigating challenges, seizing opportunities, and unlocking your startup’s full potential.