Expenses of the board: Overview, definition, and example
What are expenses of the board?
Expenses of the board refer to the costs incurred by the members of a company's board of directors or governing body while carrying out their duties and responsibilities. These expenses may include travel costs, accommodation, meals, meeting-related expenses, and other costs directly associated with fulfilling their roles as directors. In many organizations, the board's expenses are reimbursed by the company, as these costs are essential for the directors to effectively perform their governance duties.
Expenses of the board are usually outlined in the company's bylaws or policies and are subject to approval by the board itself or the relevant governing body. These expenses are generally considered legitimate costs of business operations, as board members are expected to travel and meet regularly to make decisions that affect the company.
Why are expenses of the board important?
The expenses of the board are important because they help ensure that board members can perform their duties without being financially burdened. Properly compensating board members for their time and related expenses is crucial for attracting qualified individuals to serve on a company's board. Furthermore, clear guidelines for board expenses help ensure transparency and fairness, preventing misuse of company funds.
For companies, managing board expenses effectively is also a key part of governance and compliance. If the board expenses are not properly tracked or approved, it could lead to questions of mismanagement or improper use of company resources.
Understanding expenses of the board through an example
Imagine a company that requires its board members to attend quarterly meetings held in various cities. For each meeting, the company reimburses board members for their travel expenses, including airfare, hotel accommodations, meals, and transportation. These costs are considered legitimate expenses of the board and are reimbursed according to the company's expense policy.
In another example, a nonprofit organization’s board of directors holds monthly meetings to discuss its strategic initiatives. The organization reimburses board members for their local travel costs, including mileage for attending meetings, as part of their board expenses. The organization ensures that all reimbursements are in line with its expense policies and that receipts are provided to justify the costs.
Example of expenses of the board clause
Here’s what an expenses of the board clause might look like in a corporate policy or board governance document:
“Board members shall be entitled to reimbursement for reasonable expenses incurred in the performance of their duties, including but not limited to travel, lodging, meals, and other expenses related to attending board meetings or representing the Company. All expenses must be pre-approved by the Board Chair and substantiated by receipts. Reimbursement shall be made in accordance with the Company’s expense policy and applicable tax laws.”
Conclusion
Expenses of the board are essential for ensuring that directors can perform their duties effectively without financial hardship. By reimbursing directors for travel and other necessary expenses, companies ensure they attract competent individuals to serve on the board, which is vital for sound governance and decision-making.
For businesses and organizations, clearly defined policies for board expenses promote transparency, accountability, and financial integrity. Properly managing these expenses also helps maintain good governance practices and ensures compliance with relevant regulations.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.