Shareholders and the Board of Directors

who are shareholders and stakeholders

The board of directors and shareholders are two essential components of the structure of any company. Both have different roles however they share the same goal to ensure the success of the company and sustainability over the long term. Understanding these roles and their interactions is crucial to good corporate governance.

The board of directors are an organization of people who are appointed by shareholders to supervise a company. They usually meet regularly to develop policies for the overall management and oversight of the company. Additionally they make the short-term decisions like hiring or firing employees, getting into an agreement with the provider or a strategic partner, and many more. The main function of the board is to protect shareholders’ investment by ensuring the operation of the company is smooth and efficiently.

Although there isn’t a legal requirement that directors be shareholders (indeed the directors at the beginning may be listed on the Certificate of Incorporation or Articles or appoint by the incorporator), the directors must hold a significant stake in the company. They can be individuals or corporations. The board can be made up of any number of people however most think that nine members are the ideal. The power of the board stems from its bylaws as well as the voting rights that are attached to shares.

Anyone can become a shareholder in the public market through the purchase of stock. In private companies, where there are shareholder agreements or bylaws in place, the shareholders have more control.