The board of directors and shareholders are two essential elements in the structure of any company. Both have distinct roles, but they have the same objective: to ensure the company’s success and sustainability over the long run. Understanding these different roles and how they interact is key to good corporate governance.
The board of directors is a group of individuals elected by shareholders to manage a company. They usually meet on a regular basis to formulate policies for the overall supervision and management of the company. They also make short-term decisions, such as hiring or firing employees, signing an agreement with a service company, and creating strategic partnerships. The primary role of the board is to protect the shareholders’ money by ensuring that the business is operating smoothly and efficiently.
Although there isn’t www.boardroomdirect.org a legal requirement that directors must be shareholders (indeed the directors at the beginning may be listed on the Certificate of Incorporation or Articles of Association, or chosen by the incorporator), the directors must hold a substantial stake in the company. They could be individuals or corporations. The board can have any number of members, however, many believe that nine members is the best. The authority of the board comes from its bylaws, and the voting rights associated with shares.
In a company that is publically traded, it’s possible for anyone to become a shareholder via the purchase of shares. In private companies, where there are shareholders’ agreements or bylaws they have greater control.