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A board of directors and an advisory board are two distinct entities with distinct responsibilities, and often there is confusion over the differences. This is due to the fact that certain companies use the terms interchangeably and the word «board» is a word that has many connotations within the business world. This can be made worse by not writing down what the role of the advisory council either through a bylaw, or board resolution.

The need to establish a clear and documented distinction between your advisory and board of directors will assist you in avoiding confusion, particularly if work with people who might not be legally allowed to be directors like teachers who are setting up micro-schools, or experienced entrepreneurs with limited personal shares. This is crucial because an official board of directors will have the responsibilities, risks and liabilities that an advisory board does not have.

A sounding board for the CEO and the management is an advisory board. It offers them guidance and connections they might not otherwise have. Typically, advisory boards try this web-site are not shareholders or investors in the company and they do not hold an interest in voting.

It is also worth mentioning that, even though they might be experts in certain areas the advisory board does not have the authority to direct the company. The CEO and management team are the ones who make the decisions not an advisory committee. The only way for an advisory board to have authority to control the company is if they are given formal board committee status with voting rights and protection from liability through Deeds of Indemnity, Access and Directors and Officers Insurance.