A board of directors advises and directs a company, while a board of trustees oversees operations and has legal responsibility. An advisory board offers advice and assistance, and can be helpful for small companies. Companies may choose to have both a board of directors and an advisory board.
A board of directors is a small group of people who meet periodically to offer advice and direction to a company. Board members usually do not have a stake in the company and have no legal liability for the company’s actions. Typically, small businesses and start-ups use a board of directors in order to gain a solid footing in their market, and the people who serve on the board are chosen based on their expertise and prestige.
It can be easy to confuse a board of trustees and an executive board, as to the uninitiated these two groups may sound alike. However, a board of directors is a group of officers who are elected by the shareholders to oversee the company’s operations, as opposed to individuals who are selected by the company. Members of a board of directors have legal responsibility for events that occur on their watch and are compensated in stock or cash for their work.
Some people may also use the term “board of advisers” to generally refer to a group of professionals convened to offer advice and assistance on a project. Universities, for example, might have advisory boards to guide them on sensitive issues, and those boards could also help research groups and other groups. In this case, board members are chosen for their expertise and reputation in the field, to ensure that the project is carried out in a professional and ethical manner.
An advisory board can be a great tool for a small company, especially as it expands and its operations begin to go beyond the reach and knowledge of the company’s agents. Because board members hold no authority, they cannot make decisions for the company, but they can offer helpful recommendations based on research and experience. The size of such a board can vary, but 3 to 10 people are common, ensuring a wide spectrum of opinions and experiences.
Once a company is established, a board of directors must be established to satisfy the shareholders. However, a company may choose to also maintain a board of directors or integrate advisory group members into the board of directors. Many small businesses find the work of such a council extremely helpful, as members can identify potential problems, offer suggestions for improvement, and act as advisors on new projects.
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