The board of directors and shareholders are both crucial elements in the structure of any company. Both have different 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 key to good corporate governance.
The board of directors are an organization of people elected by shareholders to supervise a company. Usually, they meet on a regular basis to set up policies for overall oversight and management. They also make decisions on a short-term basis, such as hiring or firing employees, negotiating an agreement with a service provider and forming strategic partnerships. The primary role of the board is to safeguard the shareholders‘ investments by ensuring that the company is operating smoothly and efficiently.
While there aren’t any legal requirements that directors be shareholders (in fact, the directors who are initially appointed may be listed in the Certificate or Articles of Incorporation, or selected by the incorporator) They do need to have a significant interest in the company. They may be individuals or corporations. The board can be composed from any number of members however, the majority of people believe that nine members are the ideal. The authority of the board comes from its bylaws, and the voting rights associated with shares.
Anyone can become a shareholder of a publicly traded company through the purchase of stock. However in private companies where there is a shareholders‘ agreement or bylaws, the shareholders could have greater control over who can be a shareholder.