Board of Directors Vs Advisory Board

There is often confusion regarding the distinctions between a boards of directors and an advisor board. In part, this is due to the fact that some companies use both terms interchangeably and the term «board» has many connotations in business. This can be further complicated by not clearly defining the purpose of the advisory board in writing either through a resolution of the board or bylaws.

It is important to make clear the distinction between your advisory board and your board of directors. This will allow you to avoid confusion when you are working with people that may not be legally permitted to serve as directors, for example, teachers who create micro-schools or experienced entrepreneurs with only a small stake in the business. This is crucial as a legal board of directors has responsibility, liabilities and risks that advisory boards do not have.

An advisory board exists to act as a sounding board for the CEO and management team offering them advice and connections they may not have www.theirboard.com/whats-the-difference-between-the-board-of-directors-and-an-advisory-board/ access to. Typically advisory boards aren’t shareholders or investors in the company and do not have any voting rights.

It is also worth noting that even though they may have expertise in certain areas an advisory board does not have the power to steer the company. The management team and the CEO take the final decisions, not an advisory board. Only if an advisory panel is granted official board committee status, with voting rights and the ability to cover liability through Deeds Indemnity and Directors and Officers Insurance can be able to lead the company.