Business owners tend to be self-motivated and independent people. That’s why they’re business owners — they would rather be responsible for their own success than work for someone else.

If you have built the company, you probably prefer to make your own decisions, chart your own course, and be in charge of your own destiny.

Understandably, when owners of small and medium businesses hear about advisory boards, some of them tend to think it sounds like a threat to their independence. Often, they worry that setting up a board will mean handing over at least some degree of control over the company.

That is true with a formal board of directors but not for an advisory board. One of the roles of a board of directors is to hire and fire the CEO. The advisory board has no fiduciary powers.

I have chaired advisory boards and boards of directors for private, public, and not-for-profit companies. Tactical advice is higher on advisory boards, and advice tends to be more specific to the actual changes happening in the company at an operational level. There is a freer flow of information and discussion.

It takes a distinctive type of person to build and run a successful business. You need to have vision and determination and be willing to put in a lot of work. You’re a self-starter, and confident in your own abilities.

These are all great qualities but, if you aren’t familiar with how an advisory board works, they can make you wary of the thought of having to give up your ability to run your business the way you think it should be run.

A traditional board of directors will certainly reduce your control over the business. A board of directors has fiduciary responsibilities, which means a legal duty to all shareholders and that translates into more oversight and governance.

I’m not saying that a board of directors is a bad idea. It’s essential if you’re planning to go public at some stage. However, if you’re not at that point yet, a board of directors will definitely place some major limits on your freedom of action.

What if you could have a board that would advise you, be a sounding board for new ideas and warn of problems that you hadn’t foreseen but didn’t have the ability to overrule your decisions or make you report to them when you need to be busy with something else?

This is what an advisory board does.

I’ve already mentioned that an advisory board doesn’t have the legal obligations associated with a board of directors. This is a real strong point if losing control is a concern for you.

Business owners often get confused between a board of directors and an advisory board thinking they both serve the same purpose. However, they are actually quite different.

Let’s look at the differences between the two kinds of boards in a bit more detail.

A board of directors is part of your corporate governance structure. As such, it gives you binding advice because of their legal obligations and personal liability as a director.

A board of directors has voting rights and the power to make changes in the organisation. Major decisions are voted on as the governing body. They have the power to remove the CEO, request audits, assess risks, and determine remuneration.

If the advice of your board of directors steers the company in the wrong direction, they are personally liable for that advice.

An advisory board is there to provide guidance, not governance, and its advice is non-binding. If you feel that the advice you get isn’t appropriate, you’re free to disregard it, and the board can’t tie your hands in any way.

In practice, most business owners usually act on or actively debate the advisory board’s advice. Its members should be chosen because you respect their experience and knowledge, which means their advice is usually worth taking.

A traditional board of directors is not as flexible. They have a clearly defined role as the governing body with fiduciary responsibilities. Their overall approach to business issues is more defensive.

Advisory boards are very adaptable. It’s up to you what the board’s mandate is, so as you set it up you can decide what capabilities it needs to deliver. You can also decide how it will operate.

Advisory board members are also not liable for any advice they give, and you are not required to take it. At the end of the day, it’s your decision.

Advisory boards are much more on the offensive when it comes to giving advice. The members are concerned with strategy and growth and how they connect to drive profitability.

In contrast, the roles and responsibilities of directors on a board are laid down by law. In Australia, they’re supervised by Australian Investment and Securities Commission (ASIC), which is responsible for enforcing the Corporations Act, 2001.

If you want to appoint someone to a traditional board of directors, they need to go through a formal appointment process. They need to apply to ASIC to become a director, and ASIC will then investigate them to make sure they’re a suitable person for the post — i.e., they don’t have any convictions or bankruptcies, for example.

Once they’re approved, they become subject to corporation law, which is onerous.

The vetting process for directors was put in place to protect businesses against unsuitable directors gaining financial control, but it means it can be quite a slow, and often expensive, process to add a new director to your board.

There are no specific laws that regulate the activities of an advisory board. It’s there to give advice and guidance and those aren’t areas that ASIC gets involved in. The laws surrounding fiduciary boards are mainly there because of financial and legal responsibilities to act in the best interest of shareholders, and an advisory board doesn’t have those.

Because advisory boards aren’t regulated by the ASIC process, it’s possible to add and remove board members much more easily. That makes them much more responsive to changing business needs.

A board of directors is responsible for reviewing the company’s financial resources. It has obligations to shareholders, who hold it accountable for the organisation’s performance, and it approves annual budgets as well as setting executive pay. This is a significant list of financial responsibilities, which tends to influence its focus.

Directors put a high priority on legal compliance and financial numbers. Any advice they give will be slanted in that direction, and it might not relate to your current business goals.

Financial solvency is important and complying with the law is non-negotiable, but having those as primary responsibilities takes the spotlight off strategy and business growth. After all, the personal liability as a director may mean they are not always aligned with how you want to grow the business or to where you want it to be in the longer term.

Due to the board of directors’ legal responsibilities, there are also legal requirements on how it’s structured and what its members’ responsibilities are. An advisory board’s membership doesn’t have this constraint. You can select the people who are the best fit for the board’s purpose, and you decide what that purpose is.

An advisory board gives you the ability to choose exactly the advisors you need. You can also adapt its composition if your requirements change at any stage. If you decide you need to bring in a new member or let an existing one go, there are no regulatory obstacles to doing that.

Finally, an advisory board is going to be more cost-effective. Directors’ fees for a traditional board can be pretty expensive, but running an advisory board will cost you a lot less. If you don’t need a fiduciary board, an advisory board will be the cheaper option.