Should I Join a Board of Directors?

Should I Accept an Offer to Join a Board of Directors?

Video describing the benefits and risks of joining a board of directors. See below for an enhanced transcript of the video recording.

 

[Enhanced Video Transcript]

Welcome to an edition of Genesis Law Firm Teaches. The topic: Should I accept an Offer for a Position on a Board of Directors? An offer for a director position is an honor. However, most of us want to know the pros and cons before accepting. In this video we’ll go through those. The pros are mostly common-sense, the cons less so. So stay tuned for the drawbacks of joining a board.

As a disclaimer, the information in this this video will be based upon Washington State law. But most other states have comparable rules and regulations. Most of the information I’ll be relating should be applicable to anyone in the United States.

Pros: The Benefits of Becoming a Director

Let’s get to the advantages:

  • It’s prestigious when you join a board of directors–it looks good on your resume.
  • It’s also a learning opportunity, especially if you’re invited to join the board of a successful company.
  • It might be that the position is compensated. Some positions on boards of directors are actually very well compensated.
  • It’s a great chance to build connections. Most of the people on boards of directors are heavy hitters within the community or at least within the business community.
  • It is a chance to help the company that you’d be working with. If for example, you’re a big fan of a non-profits mission, then maybe you’ll join the board of directors purely for that reason.

Cons: The Drawbacks of Becoming a Director

Let’s get to the cons or disadvantages of joining a board:

  • The first is the time commitment. Before accepting the position you should probably ask, “How often does the board usually meet, and how long do the meetings typically last?”
  • The next con would be director liability. As a director of a company, you are required to act with reasonable prudence and in the best interest of the company. If you fail to satisfy those conditions you could actually have personal liability. Aggrieved parties could sue you individually for your wrongful actions.
    You might want to ask the person who is offering you the position whether the company has anything in the articles of incorporation that would limit you liability. The articles of incorporation can limit director liability to only intentionally wrongful actions. That greatly reduces the likelihood that you would be sued for wrongful actions.
    You might also ask whether the company has director liability insurance. Usually a well-run business will. And that insurers that even you do get sued, usually you have somebody out there to pay your attorney fees and any damages.
  • One more reason why you might not want to join a board of directors: it can limit your ability to transact business with the company. You and the people related to you–such as your company, siblings, parents, children–would not be allowed to transact business with the company unless an exception applies. It creates a conflict of interest. We have a separate video on this topic.

If you would like more information on these and related legal topics, our firm encourages you to click on the ‘resources’ tab above. There you’ll find a number of videos and articles. Or contact us at 866-631-0028 to speak with a lawyer at Genesis Law Firm.

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