The board of directors and shareholders are both important elements of the structure of any business. They each have their own roles, however they share the same goal to ensure the company's success and sustainability in the long run. Understanding these roles and their interactions is essential to ensuring good corporate governance.
The board of directors are a group of individuals elected by shareholders to oversee the company. They typically meet regularly to establish policies for the overall supervision and management of the company. They also make decisions on a short-term basis, such as hiring or firing employees, negotiating an agreement with a service provider, and making strategic partnerships. The primary function of the board is to protect the investment of shareholders by ensuring that the business runs smoothly and efficiently.
Although there is no legal requirement that directors be shareholders (indeed the directors who were initially appointed are listed in the Certificate of Incorporation or Articles or chosen by the incorporator) Directors must hold a substantial stake in the company. They can be individuals or corporations. The board could have any number of members but many believe that the maximum number of members is nine. is ideal. The board's authority is derived from its bylaws, and the voting rights that come with shares.
In a business that is publicly traded, it's simple for anyone to become a shareholder via the purchase of shares. However in private companies where there is a shareholders agreement or bylaws the shareholders may have greater control over who may be a shareholder.