Board of Advisors Vs. Board of Directors
Business operating in the United States will generally make use of either a board of advisers or a board of directors. Some businesses have one or another of these bodies while other enterprises have both.
In some instances, confusion exists as to the purposes, composition, responsibilities and authority of these two types of boards. Indeed, on occasion the terms board of advisers and board of directors are used interchangeably. The reality is that a board of advisers is a distinct type of body from a board of directors.
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Board of Advisers Features
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A board of advisers is a more informal group of individuals that possess knowledge and experience in certain areas that are beneficial to the management of a business enterprise. Members of a board of advisers typically do not own shares of stock or have any other type of ownership interest in the business they serve.
It is an informal group composed of knowledgeable individuals who help guide the activities of a small or start-up firm. Members of the board of advisers do not normally own shares in the firm, and (unlike the members of the board of directors), normally do not have the legal responsibility for its operations.
Legal Responsibilities of Board of Advisers
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Because members of a board of advisers serve a business in an informal capacity, they do not have the type of legal responsibility that accrues to individuals on a board of directors. A board of advisers provides advice to the management of a business based on their own experience and expertise.
There are rare occasions when a business will assign specific legal responsibilities to a board of advisers. For example, a board of advisers might be assigned legal responsibility to oversee a specific element of a firm's operations. In those cases, the exact nature of this delegation of responsibility will be clearly delineated with well-defined parameters. -
Board of Advisers and Start-Up Firms
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The most common situation in which a board of advisers is found is at a start-up business enterprise. Because of financial limitations combined with the need for authoritative guidance, a start-up venture establishes a board of advisers to satisfy these two important objectives. Moreover, when a board of advisers is composed of individuals who have standing or a reputation within the industry in which the business operates, this board adds a cache to the enterprise that otherwise would be lacking.
Board of Directors Features
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A board of directors is the body that bears the ultimate legal responsibility for the operation of a corporation or certain other types of business enterprises. The board of directors of a corporation is selected by the shareholders. (Boards also exist in not-for-profit organizations, which lack shareholders. In these situations the articles of incorporation will set forth the manner in which the board members are selected.)
The board itself will elect its own officers. In most states, the law requires a corporation's board of directors to have a chairman and a secretary. All other officers (including board treasurer) are established within the articles of incorporation.
Responsibilities of Board of Directors
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The responsibilities of the board of directors are found in three separate resources. First, the laws of the state in which a business is located sets forth specific responsibilities for which the board is obliged. Second, the articles of incorporation of a business likewise include directives on not only how the board is organized and constituted but what responsibilities it possesses. Finally, the bylaws of a corporation set forth with even greater specificity the duties and responsibilities of a board and its members.
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