Shareholders and the board of directors are the two most important elements of any structure for a company. Although they each have their own roles, both have the same goal: ensuring the company is successful and sustainable over the long term. Understanding these roles and their interactions is crucial to ensuring good corporate governance.
The board of directors is a set composed of people elected by shareholders to supervise the company. They usually meet regularly to formulate guidelines for the management and oversight of the company. They also make decisions on a short-term basis, such as hiring or firing employees, signing an agreement with a provider of services, and the formation of strategic partnerships. The main function of the board is to protect the investment of shareholders by ensuring that the business is running smoothly and efficiently.
There is no lawful requirement that directors are shareholders (indeed the directors who were initially appointed may be listed on the Certificate of Incorporation or Articles or chosen by the incorporator), the directors must have a significant stake in the company. They can be individuals or corporations. The board could be made up of any responsible for finances number of people however, the majority of people consider nine members to be the ideal number. The power of the board is derived from its bylaws and the voting rights associated with shares.
In a company that’s publicly traded, it’s easy for anyone to become a shareholder via the purchase of shares. In private companies, where there are shareholders’ agreements or bylaws in place, the shareholders have greater control.
