Shareholders and the board of directors are the two most important elements of any company’s structure. While they play different roles, both have the same goal of ensuring the company’s success and sustainable over the long term. Understanding the roles of each and their interrelations is crucial to good corporate governance.
The board of directors are an organization of people who are appointed by shareholders to oversee the company. Usually, they meet regularly to decide on policies that govern the overall management of the company and oversight. They also make short-term decisions including hiring or firing employees, negotiating an agreement with a service company, and the formation of strategic partnerships. The primary function of the board is to safeguard the investment of shareholders by ensuring that the business is running smoothly and efficiently.
There is no legal requirement that directors be shareholders (indeed the directors https://boardroomdirect.org/what-does-it-mean-to-be-a-shareholder-in-a-private-company/ who were initially appointed may be listed on the Certificate of Incorporation or Articles, or chosen by the incorporator), the directors must hold a significant stake in the company. They can be either individuals or corporations. The board may be composed of any number of people however, the majority of people think that nine members are the ideal number. The board’s authority comes from its bylaws as well as the voting rights associated with shares.
In a company that is publicly traded, it is easy for anyone to become a shareholder via the purchase of shares. However in private companies, where there is a shareholders’ agreement or bylaws, shareholders might have greater control over who may become a shareholder.