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Board of Directors Vs Advisory Board

A board of directors and an advisory board are two different entities with distinct roles. often there is confusion over the differences. This is because some companies employ the terms interchangeably as well as the term « board » is a word with numerous meanings in the business world. This can be further complicated by not defining the role of the advisory board in writing through a board resolution or bylaws.

It is important to make an obvious distinction between your advisory board and your board of directors. This will help you avoid confusion when working with people who 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 important as a legal board of directors will have the responsibilities, risks and liabilities that an advisory board does not have.

A sounding board for the CEO and management is known as an advisory board. It gives them information and connections that they might not otherwise have. Advisory boards are typically not shareholders or investors and don’t have a voting stake.

It is also worth noting that, even though they might be experts in certain areas the advisory board does effective board member not have the power to steer the company. The management team and CEO make the decisions, not an advisory board. Only when an advisory committee receives formal board committee status with voting rights as well as insurance coverage for liability through Deeds of Indemnity and Directors and Officers Insurance, will be empowered to guide the organisation.

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