Shareholders and the Board of Directors

The board of directors and shareholders are two essential components of the structure any business. Each has a different role, however they share the same goal to ensure the company’s success and sustainability in the long run. Understanding the different roles and how they interact is the key to good corporate governance.

The board of directors is an organization of people who are chosen by shareholders to supervise a company. They usually meet regularly to create policies for the overall supervision and management of the company. 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 main function of the board is to protect the investment of shareholders by ensuring that the company runs smoothly and efficiently.

While there aren’t any legal requirements that the directors be shareholders (in fact, the initial directors can be listed in the Certificate or Articles of Incorporation, or deemed to be chosen by the incorporator), they do have to hold a significant stake in the company. They can be individuals or corporations. The board could have any number of members, however, many think that nine members is the ideal number. The board’s power derives from its bylaws, as well as the voting rights associated with shares.

Anyone can become a shareholder in the public market by purchasing stock. In private companies, if there are shareholder agreements or bylaws that give shareholders greater control.

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