The Difference Between Shareholders and Board of Directors

You may have heard the terms’shareholders,’ and “board directors” in movies and television, but you might not are you aware of what they mean for a business. Both roles have significant differences and companies must know these roles to function effectively.

Shareholders are the owners of companies in a collective sense and elect a board of directors to run their company and watch at their investments’ interests. The board is legally https://boardroomdirect.org/what-does-it-mean-to-be-a-shareholder-in-a-private-company/ bound to govern on the shareholders’ behalf, and help companies prosper. Directors can also hold shares of the company, however this is not a typical practice.

The board of directors formulates policies for overall company oversight as well as management, and meets regularly to discuss and resolve problems. It is the duty of the board that it be composed of a range of individuals who are independent, knowledgeable and well-qualified to oversee the operation of the company.

Directors are accountable for making decisions that benefit the business in the long term, hiring managers and corporate officials who will manage the day-today functions, and communicating the company’s corporate culture to employees. They also have the responsibility to ensure the financial health of the business by ensuring that its finances are in order and that there aren’t any instances fraud.

While shareholders aren’t in a position to directly influence or amend a decision that is made by the board, they can voice their approval or raise objections to the decisions being made. Directors can also be removed from their positions within the company if they don’t violate their Shareholder Agreement and corporate bylaws.