Shareholders and the board of directors are two crucial elements of any company’s structure. While they play different roles, both share the same objective of ensuring that the company’s success and sustainable over the long run. Understanding these roles and their interactions is crucial to ensuring good corporate governance.
The board of directors are a group of individuals elected by shareholders to oversee the company. They usually meet regularly to establish policies for the overall supervision and management of the business. In addition they are responsible for the immediate decisions, such as hiring or firing employees, getting into an agreement with the provider, signing strategic partnerships and many other. The main function of the board is to safeguard investors’ money by ensuring the operation of the company is smooth and efficiently.
Although there isn’t a legal requirement that directors be shareholders (indeed, the initial directors could be listed in the Certificate of Incorporation or Articles or chosen by the incorporator) Directors must hold a significant stake in the company. They could be individuals or corporations. The board can comprise any number of members, but many believe that nine members is the ideal number. The power of the board stems from its bylaws and the voting rights associated with shares.
In a company that’s publicly traded, it is easy for anyone to become a shareholder through the purchase of stock. In private companies, if there are shareholder agreements or bylaws in place, the shareholders have greater control.
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