Sneham Jewels Pvt Ltd

Board of Directors Vs Advisory Board

There is often confusion about the distinctions between a boards of directors and an advisor board. In part, this is due to the fact that a few companies use both terms interchangeably and the term “board” has many meanings in the business world. This can be further exacerbated by not clearly defining the role of the advisory council either in a bylaw or board resolution.

Making a clear, well-documented distinction between your advisory board and board of directors will help you to avoid confusion, especially if are working with individuals who might not be legally allowed to serve as directors, such as teachers setting micro-schools, or experienced entrepreneurs with small personal shares. This is essential because a legally-constituted board has responsibility, obligations and risks that an advisory board won’t.

An advisory board exists to serve as a sounding-board to the CEO and management team by providing them with suggestions and connections they may not have access to. Typically advisory boards are not shareholders or investors in the company and do not have an interest in the company’s voting.

It is also worth noting that, despite the fact that they may have experience in certain areas an advisory board does not have the power to direct the company. The CEO and management team take the final decisions not an advisory committee. Only if an advisory panel is granted formal board committee status that has voting rights and insurance for liability under Deeds Indemnity and Directors and Officers Insurance, will be empowered to direct the company.

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