Template Tuesday: A Board of Directors for your LLC?

In partnership with

Good Morning!

1. Feature: Template Tuesday: A Board of Directors for your LLC? (4 min)

2. From the Archive:

   • Need an Attorney for your Business? A Guide to Selecting Carefully

   • A Practical Guide to Obtaining, Protecting, and Changing Your LLC Name

Each day builds the business. Tuesday is no different.

-TCoL

Missed our last feature article? Pulling Together a Successful (and Fun) Fall Planning Meeting for Your SMB

Boards are optional for LLCs. The statutes give you flexibility. Your operating agreement can keep member management, appoint one or more managers, or create a true board that acts like a corporate board. The decision is less about labels and more about who decides what. Draft with precision and you can tailor the board to your needs.

When a board helps a sole member

A sole member often seeks solid advisory help or to get certain family members more involved, while keeping 100% ownership of the business. A board creates structure that is stronger than informal advice. It puts decisions on a calendar, makes reports routine, and turns mentorship into real accountability.

Start with a narrow mandate. Give the board advisory authority and a short list of decisions that need board consent. Expand authority after results and trust grows. This is smoother than an abrupt handoff to a full-empowered board.

This also is a good path if you intend to sell to employees later.

Why multi member LLCs add a board

Multi member companies use boards to professionalize governance and to meet investor expectations.

A board sets an agenda for budgets, growth, talent, and strategy. Outside or independent directors can bring reach and judgment that owners may lack.

If you plan to raise capital, a board signals discipline, and it gives future investors a familiar forum (and a seat if they require it).

The balance between members and the board

Get the allocation of authority right. Reserve owner level decisions for the members. Give the board authority for operating and strategic calls within limits. Many LLCs begin with modest board power and set monetary caps for contracts, debt, and capital spending. Owners approve anything above the caps. Revisit thresholds each year as the board proves itself. State what happens when a director is also an owner or investor. Clear rules and consistent minutes from board meetings are key.

Know what members must still approve

State law preserves member rights for significant events such as mergers, conversions, and winding up. Your agreement can shape process and thresholds, but it cannot erase nonwaivable approval items set by statute. Delaware handles mergers through a detailed merger statute. Texas requires approval of a plan of merger in the manner the code prescribes. Wyoming and other RULLCA states require formal approval before filings are accepted. Your board cannot take these actions on its own unless the statute and the agreement allow it in clear terms.

Five state snapshots

Delaware. Delaware gives wide contractual freedom. Management rests with members by default, but the agreement may designate managers/directors, and there may be more than one. That flexibility lets you create a board of directors if the agreement says so.

Florida. Florida follows the revised act. Default is member management, but the operating agreement or articles can provide manager/board management or use similar words. That language supports a board of directors when the operating agreement sets it up.

Nevada. Nevada permits vesting management in one or more managers and directs that their offices and responsibilities come from the operating agreement. That structure allows a board format if the agreement defines it that way.

Wyoming. Wyoming’s act defaults to member management but allows manager management and even any words of similar import. That textual room lets you form a board and spell out its powers in the agreement.

Texas. Texas uses the idea of a governing authority that consists of managers if the company agreement or certificate so provides. The company agreement can shape that governing authority into a board with clear roles. The Secretary of State also explains how internal changes to management should be reflected in filings.

How to amend your operating agreement

Your agreement is the control room. To create a board, amend the management clause in your operating agreement and add a new clause for the board. Name the board, set size and appointment rights, and define meetings, quorum, and voting. Grant authority for operations within limits. Reserve member approvals for owner level actions such as mergers, major asset sales, dissolution, new issuances, and amendments. Add initial spending and debt caps so that owners retain ultimate authority over the limits. Clarify fiduciary standards and information rights within what your state permits. Then add indemnification and expense advancement for directors. Finally, add conforming changes so that references to managers point to the board. Delaware, Florida, Nevada, Wyoming, and Texas all allow you to take this path through clear drafting.

Don’t have an operating agreement yet? Read our prior article, “Your LLC Is Missing Its Most Important Document”, to get started.

The eight key elements to put in the amendment

Adoption of a board. State that the company will be managed by a board from the effective date.

Composition and seats. Fix the number of directors and who may serve, including directors who are not owners. Keep the minimum number of directors small.

Appointment and removal. Give members the right to appoint and remove seats and set terms.

Authority of the board. Grant authority for operations, budgets, contracts, borrowing within limits, and officer appointments.

Reserved member approvals. List actions that always need member approval, including mergers, dissolution, major asset sales, equity issuances outside an approved plan, admission of new owners, and amendments.

Initial limits and thresholds. Set spending caps, debt limits, and related party approval rules for an initial period.

Meetings and consents. Require regular meetings, set quorum and voting rules, and permit written consents to action without waiting for formal meetings.

Duties, information, and indemnification. Set fiduciary standards as your law allows, define information rights, and provide indemnification and expense advancement for directors.

Need a template to amend your LLC’s operating agreement to allow for a board of directors? Upgrade your free subscription to Premium now and get it and close to 20 other professionally-prepared templates in our ever-expanding Template Library. Only $7.95/mo. or $85.86/yr.

Bottom line

The right board can improve your business, attract capital, and improve execution.

It works when the board clause in your operating agreement draws a clean line between board authority and member control and when you install modest limits at the start. Confirm the nonwaivable items in your state before you adopt the board.

All of the above is the easy part. The hard part is deciding on the right Board members.

(We strongly encourage you to use an experienced attorney when changing your operating agreement to create and structure a board of directors. Use our template as a timesaver and outline when you meet with your attorney to make the key decisions about the power (and limits) of your new board. Upgrade your free subscription to Premium to get the template.

Have an interesting business question and need a free bit of advice? Send your question to [email protected]. No confidential info, please!