KEY DIFFERENCES BETWEEN

BOARD OF DIRECTORS AND ADVISORS

BOARD OF DIRECTORS

·        Elected by Shareholders (Owners of Corporation)

o       Board of Managers appointed by members or owners of Limited Liability Company

o       Board of Managers/General Partners appointed by owners of Limited Partnership

·        Minimum number often specified by State Statute

·        Power of Board from Articles of Incorporation/Corporate By-Laws

o       E.G. Typical clause states: “The business and affairs of the corporation shall be managed by its Board of Directors.”

o       Shareholders elect Directors, Directors elect Officers, Officers appoint the Senior Managers

o       Meetings held on a regular basis

o       Director term is for a specified period (e.g. one year)

o       Governing Board makes decisions which are legally binding and must be implemented by CEO/Officers/Managers

·        Closely held businesses typically have owners on Governing Board

·        Board has fiduciary duty and liability for bad decisions

BOARD OF ADVISORS

·        Appointed by the business leadership (Owner/CEO)

·        No legal (statutory) requirements – appointment is voluntary

o       Decisions are recommendations and not binding on company

o       Meetings not required on a regular basis

o       Advisors term is not usually for a specified period

·        Owners attend but are not typically members of Advisory Board

·        Individual advisors permit fresh, objective, independent ideas and conflict resolution among owners/leadership of company

o       Often helpful for family businesses/small private companies where owners are decision makers and may not have “Vision”

o       Allows “out of the box” thinking, free exchange of ideas/advice

McNichols & McNichols, Inc. – P.O. Box 2226 – Middleburg, VA 20117 – (703) 477-7158