When and why does a company require a board of directors? How come it can sometimes overrule or even push out the owner?
In: Economics
These answers are right, but a bit inaccurate in that all companies have a board. What’s important are to understand the difference between a board vote and shareholder votes. Companies’ articles of incorporation and bylaws determine what requires a board vote and what requires a shareholder vote.
First, boards represent the shareholders. For private companies, this can just be one founder, or more often consist of major shareholders (think venture capitalists). Public companies boards usually are made up of the CEO, a few directors elected by shareholders and “independent” board members. The board votes on things like executive compensation, exec hiring, etc. So if there is enough board votes, they can vote to strip a CEO/founder of their job. It’s important to note that person still holds their shares.
This serves as a check and balance as if a founder owns 51%, they may only have 1 board seat and thus cannot “bully” the other investors.
Finally, all companies have different rules on what is determined by the board vs shareholders
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