Shareholders and the Board of Directors

Shareholders and the board of directors are both crucial elements of any structure for a company. Despite having 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 ensuring good corporate governance.

The board of directors is a group of individuals elected by shareholders to oversee the company. They usually meet on a regular basis to decide on policies that govern the overall management of the company and oversight. They also make decisions on a short-term basis like hiring or firing employees, signing an agreement with a provider of services, and the formation of strategic partnerships. The primary function of the board is to safeguard the shareholders’ investments by ensuring that the company is operating smoothly and efficiently.

There are no legal requirements that the directors must be shareholders (in fact, the first directors may be listed in the Certificate or Articles of Incorporation, or selected by the incorporator) however, they are required to have a substantial stake in the company. They could be individuals or corporations. The board can be composed from any number of members however, most people consider nine members to be the ideal number. The power of the board comes from its bylaws as well as the voting rights that are attached to shares.

Anyone can become a shareholder in a publicly traded company by purchasing stock. However in private firms with a shareholders’ agreement or bylaws, the shareholders could have more control over who can be a shareholder.

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