Shareholders and the Board of Directors
The board of directors and shareholders are both important components of the structure of any company. Both have different roles but they have the same objective: to ensure that the company’s success and sustainability on the long-term. Understanding the roles of each and their interrelations is key to good corporate governance.
The board of directors is a group composed of people elected by shareholders to supervise the company. They usually meet regularly to create policies regarding overall oversight and management. They also make short-term decisions including hiring or firing employees, negotiating an agreement with a service provider, and forming strategic partnerships. The primary responsibility of the board is to safeguard shareholders’ investments by ensuring the business is running smoothly and efficiently.
Although there is no legal requirement that directors are shareholders (indeed the initial directors are listed in the Certificate of Incorporation or Articles of Agreement or appoint by the incorporator) directors must hold a substantial stake in the company. They can be either individuals or corporations. The board can be comprised of any number of people however most consider nine members to be the ideal. The board’s authority is derived from its bylaws and the voting rights associated with shares.
In a company that is publicly traded, it’s easy for anyone to become a shareholder by the purchase of stock. However in private firms with a shareholders’ agreement or bylaws, the shareholders could have more control over who is eligible to be a shareholder.