Shareholders and the board of directors are two important elements in any company structure. Both have different roles but they have the same objective: to ensure the success of the business and sustainability on the long-term. Understanding these roles and their interactions is key to good corporate governance.

The board of directors are an organization of people who are chosen by shareholders to oversee a company. They typically meet regularly to establish policies for overall company oversight and management. In addition they are responsible for the short-term decisions such as firing or hiring employees, signing an agreement with a service provider or a strategic partner, and many other. The primary function of the board is to protect the shareholders’ investments by ensuring that the business is operating smoothly and efficiently.

While there are no legal requirements that 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) however, they are required to hold a significant stake in the company. They could be individuals or corporations. The board can be comprised of any number of persons however most believe that nine members are the ideal. The power of the board is derived from its bylaws and the voting rights attached to shares.

In a company that’s publicly traded, it’s easy for anyone to become a shareholder via the purchase of stock. However in private companies, where there is a shareholder agreement or bylaws, the shareholders could have greater control over who can become a shareholder.