The board of directors and shareholders are two essential elements in the structure of any business. Although they each have their own roles, both have the same goal of making sure that the company’s success and sustainable over the long run. Understanding these roles and their interactions is key to good corporate governance.
The board of directors is a set composed of people elected by shareholders to supervise the company. They usually meet on a regular basis to establish policies for the general supervision and management of the company. They also make short-term decisions, such as hiring or firing employees, negotiating an agreement with a service provider, and forming strategic partnerships. The main role of the board is to safeguard the shareholders’ money by ensuring that the company is operating smoothly and efficiently.
While there are no legal requirements that the directors must be shareholders (in fact, the first directors can be listed in the Certificate or Articles of Incorporation or be selected by the incorporator) They do need to hold a significant stake in the company. They can be either individuals or corporations. The board could have any number of members however many believe that nine members is ideal. The authority of the board comes from its bylaws as well as the voting rights that come with shares.
In a company that is publicly traded, it is easy for anyone to become a shareholder by the purchase of stock. However, in private companies with a shareholders’ agreement or bylaws, shareholders might have greater control over who may be a shareholder.