Shareholders and the board of directors are two crucial elements of any structure for a company. Although they have different roles, they share the same goal of ensuring the company is successful and sustainable over the long term. Understanding the various roles and how they interact is crucial element to ensuring good corporate governance.
The board of directors are an organization of people who are appointed by shareholders to oversee a company. They usually meet regularly to establish policies for the overall management of the company and oversight. They also make decisions on a short-term basis for example, hiring or firing employees, negotiating an agreement with a provider of services, and the formation of strategic partnerships. The main function of the board is to safeguard shareholders’ investments by ensuring the company runs smoothly and efficiently.
There aren’t any legal requirements that the directors be shareholders (in fact, initial directors could be listed in the Certificate or Articles of Incorporation, or deemed to be chosen by the incorporator) however, they are required to have a significant stake in the company. They could be individuals or corporations. The board can have any number of members but many believe that a maximum of nine members is the ideal number. The board’s power comes from its bylaws, and the voting rights that come with shares.
Anyone can become a shareholder in an publicly traded company by purchasing stock. In private companies, where there are shareholder agreements or bylaws in place that give shareholders more control.