What is an Independent Director?

An independent director is hired by an entity to sit on the board of directors. They are not affiliated with the operation of the entity and are independent in order to make unbiased decisions regarding financial matters should the need arise. Independent directors are part of a board of directors but are not part of the executive management team. They are most often utilized in special purpose entities or bankruptcy remote entities.

When Independent Directors are Required

Independent directors are usually part of large commercial loans, most often a large real estate loan. Typically a lender requires the borrower (a business entity) to borrow the money using a bankruptcy remote entity. The operating documents of this entity generally include a clause that in order to declare bankruptcy or take and Material Action, consent must be obtained from both the manager(s) and the independent director. This keeps the business entity from filing for bankruptcy protection when there are not valid reasons and helps protect the investment of the lender. It gives creditors comfort that bankruptcy won’t be used as a tactic to fail to repay the lender.

What is the Role of an Independent Director

Typically, independent director duties are defined and limited by the organizational documents of the entity and a separate appointment agreement. Independent directors may or may not attend regular board meetings. It’s important to note that while they share terminology, these independent directors are not the same as those who sit on the board of many of the fortune 500 companies. Those type of independent directors are responsible for strategic, directional, and financial decisions for the company.

How to Appoint an Independent Director

So you need an independent director. But how do you find one? Luckily there are services that can help you put one in place quickly. Here’s what to look for in an independent director. Universal Registered Agents has decades of experiences helping companies put professional, qualified independent personnel in place. To appoint independent personnel, we review the organization or controlling documents of the entity and forward our form of an agreement to be completed by counsel appointing the independent personnel. Each transaction is unique, and we work with our clients to make sure the proper people and documentation are in place for closing. Ready to get started? You can contact us here and we’ll be in touch shortly. If you have any questions about our independent director services, feel free to give us a call at 855-236-9172. We look forward to working with you!