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A board of directors and an advisory board are two distinct entities with distinct responsibilities, and often there is confusion about the differences. In part, this is due to the fact that some companies employ both terms interchangeably, and the word “board” has numerous meanings in business. This can be made worse by not writing down the role of the advisory council, either through a bylaw, or resolutions for boards.
A clear, documented distinction between your advisory and board of directors will make it easier to avoid confusion, especially if are working with individuals who might not be legally able to serve as directors, such as teachers setting micro-schools or established entrepreneurs with limited personal shares. This is important since a legally constituted board will have responsibility, obligations and risks that an advisory board doesn’t.
A sounding board for the CEO and the management team is an advisory board. It provides them with advice and connections that they wouldn’t otherwise have. Typically advisory boards are not shareholders or investors in the company and do not have any voting rights.
It is important to remember that, despite the fact that they may have expertise in certain areas an advisory board will not have the authority to steer the company. This is because the management team and the CEO are the ones responsible for making decisions not the advisory board. The only way for an advisory board to be granted authority to control the organisation is if they are given formal board committee status with voting rights and liability protections through Deeds of Indemnity, Access and Directors and https://theirboard.com/an-in-depth-explanation-of-data-room-providers/ Officers Insurance.
