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Shareholders and the Board of Directors

Shareholders and the board of directors are two important elements of any company’s structure. Each has a different role, but the same goal: to ensure that the company’s success and sustainability over the long term. Understanding these roles and their interactions is crucial to ensuring good corporate governance.

The board of directors is an organization of people that are elected by shareholders to oversee the company. They usually meet on a regular basis to establish policies for the general supervision and management of the company. Additionally they are responsible for the immediate decisions like firing or hiring employees, signing an agreement with a provider, signing strategic partnerships and much more. The primary function of the board is to protect the shareholders’ investments by ensuring that the company is running smoothly and efficiently.

There are no legal requirements that the directors must be shareholders (in fact, initial directors could be listed in the Certificate or Articles of Incorporation, or deemed to be chosen by the incorporator) however, they are required to have a significant interest in the company. They may be individuals or corporations. The board can be composed from any number of members, but most believe that nine members is the ideal number. The power of the board is derived from its bylaws, as well as the voting rights that are attached to shares.

In a business that is publically traded, it’s possible for anyone to become a shareholder through the purchase of shares. However, in private companies where there is a shareholders agreement or bylaws shareholders might have more control over who can be a shareholder.

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