Tax benefits of Setting up Your Board of Directors or Advisors

The business life of an entrepreneur can be a lonely one, making the organization of a board of directors, or board of advisors as known in certain circles, a very welcome ingredient in the recipe for a start-up’s success.  And, no business is too small for considering the board of directors’ route- companies in all different phases of their lifespan and size discuss this strategy.   Consider your board of directors a “support team” of sorts which can guide you and give you encouragement and advice when implementing your business goals and vision.  Additionally, the very concept of a “board” is a valuable method for navigating the strategies surrounding your overall business model, legal direction and, last but not least, your taxes.   

Advisors perform three essential functions:

1. Provide strategic direction and help set accompanying goals
2. Suggest tactics to accomplish these goals (which often include targeted growth rates, new products, and acquisition opportunities)
3. Help establish appropriate governance

Overall Business Model Benefits

Most analysts would agree that, most likely, a board of directors or advisors will have the most significant impact when an entrepreneur is developing a respective business purpose.  This is where your board comes in with that healthy guidance and encouragement combined with accountability for the goals you identified as a business.  Your board will offer you constructive criticism in that it will be composed of people who will give you direct and straightforward answers, but not beat you down while they’re doing so.  Selecting members for your board should be a very thorough process that a trusted business advisor can guide you through.  

Legal Direction

The asset protection that comes inherent to a bulletproof legal process is also priceless.  For example, holding regular board meetings to substantiate the so-called corporate veil is adequate even if a business is organized as an LLC.  That’s another thing…do not make the mistake that thinking entity formation as an LLC gives you a free pass to ignore concrete legal formalities.  Continuing with the LLC example, make sure you maintain meticulous meeting notes from your board gatherings.  This is a pre-emptive way, even though we hope your company will never be subject to one, to promptly respond to legal inquiries or lawsuits.  In the unfortunate circumstance that your business is sued, you will be able and ready to produce your LLC or corporate records, and potentially prove in a court of law that you have properly maintained your entity.

Taxes

The existence of a board of directors is also a very great opportunity to obtain a tax write-off.  Board meetings should be held annually, if not as often as quarterly. For the most part, portions of your travel, entertainment, and dining associated with these meetings are able to be deducted for tax purposes.  This is, of course, contingent on the fact that your board meetings are held to discuss the condition and the state of affairs for your business; this includes business plans, business course and goals for the past and future.  

Setting Up a Board of Directors or Advisors   

Contrary to popular belief, the process for assembling a board is quite simple.  In fact, businesses do not even need to file with the State or IRS.  Also, the members of a board can be named when you form your business as a corporation, in which case you will have a board of directors.  This stands true for both S-corps and C-corps, and all the provisions regarding members’ duties will be clearly outlined in the bylaws of the corporation.  Should you develop of a board while you are in an LLC, sole-proprietorship or start-up mode, your board will most likely be called a board of advisors.  The proper way to account for the board of advisors of an LLC is to place a stipulation or provision in the LLC’s operating agreement.  

The process remains easy and straightforward even if you didn’t create your board when you initially set up your entity.  What happens is that, when your yearly renewal date rolls around, you can appoint a board during your normal meeting and make a notation in your meeting minutes.  You can also create a board of directors or advisors at any time really by simply organizing a meeting, getting a piece of paper and documenting the paper as “minutes” and appointing members of your new board.  Subsequently, you can have your new members sign your minutes and agree to be serving members of the board.  It should be noted that these board members have no liability as long as they maintain roles purely advisory in nature and not making decisions regarding business operations.

Should you need assistance establishing a board or with any of the process steps involved with that creation, such as minutes, record maintenance or general establishment of a board of directors or advisors, contact Thomas Huckabee, CPA of San Diego.  As a full-service accounting firm, Thomas Huckabee, CPA can address your needs and questions.  Please contact us for a consultation.