Board of Directors Vs Advisory Board

There is a lot of confusion about the distinctions between a board of directors and an advisor board. This is due to the fact that some companies use the terms interchangeably and also the word “board” is a word with numerous meanings within the business world. This is compounded by not clearly defining the purpose of the advisory board in writing through a board resolution or bylaws.

Making a clear, well-documented distinction between your advisory board and board of directors will help you to avoid confusion, particularly if work with people who might not be legally authorized to serve as directors like teachers who are setting up micro-schools or established entrepreneurs with small personal shares. This is crucial as the legal board of directors has the responsibilities, risks and liabilities that an advisory board does not have.

A advisory board for the CEO and the management is an advisory board. It offers them information and connections that they might not otherwise have. Typically, advisory boards are not shareholders or investors in the company and do not hold any voting rights.

A board of advisors, despite their expertise in specific fields has no authority or power to control an organisation. This is because the CEO and management team are the ones responsible for making decisions not the advisory board. Only when an advisory committee is given formal board committee status with voting rights and insurance coverage for liability through Deeds of Indemnity and Directors and Officers Insurance, can be able to guide the organisation.

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