Shareholders and the board of directors are both crucial elements of any company’s structure. Both have distinct roles, but share the same goal: to ensure the success of the business and sustainability over the long term. Understanding these roles and their interactions is essential to ensuring good corporate governance.
The board of directors is a group of individuals who are elected by shareholders to supervise the company. They usually meet on a regular basis to formulate policies for the general management and oversight of the business. They also make short-term decisions including hiring or firing employees, signing an agreement with a service provider and making strategic partnerships. The primary responsibility of the board is to safeguard the investment of shareholders by ensuring that the business runs smoothly and efficiently.
While there aren’t any legal requirements that the directors be shareholders (in fact, the directors who are initially appointed are listed in the Certificate or Articles of Incorporation, or deemed to be chosen by the incorporator) However, they must to have a significant stake in the company. They could be individuals, or corporations. The board can be made up of any number of persons, but most consider nine members to be the ideal number. The power of the board stems from its bylaws as well as the voting rights that are attached to shares.
In a business that is publicly traded, it’s easy for anyone to become a shareholder via the purchase of shares. In private companies, if there are shareholders’ agreements or bylaws in place, the shareholders have greater control.