What does a company’s board of directors do?
Takeaway: The board of directors is the corporation’s ultimate governing body, legally responsible for overseeing the company’s business and affairs and acting as a fiduciary for all stockholders.
For early-stage founders, it’s easy to underestimate the board of directors—viewing it as a formality at incorporation or, later, as the seat for investor representatives. In reality, the board is the corporation’s highest decision-making authority, with legal power and fiduciary duties that shape the company’s long-term trajectory.
Under Delaware law, “the business and affairs of every corporation… shall be managed by or under the direction of a board of directors.” As a founder-director, understanding the board’s role is essential to fulfilling your obligations and building a healthy governance structure.
The Two Core Functions of the Board
Strategic Oversight and Major Decisions
The board approves the company’s most significant strategic and financial actions. Day-to-day operations remain with the officers (led by the CEO), but the board must authorize:
Hiring, firing, and setting compensation for the CEO and other senior executives.
Approving the annual operating budget and business plan.
Authorizing fundraising transactions, such as equity rounds or venture debt facilities.
Issuing stock or granting stock options.
Approving major corporate transactions, including mergers, acquisitions, or the sale of the company.
Fiduciary Duties to Stockholders
Directors have a legal duty to act in the best interests of the corporation and all of its stockholders—common and preferred. These fiduciary duties include:
Duty of Loyalty: Put the company’s interests ahead of personal or third-party interests.
Duty of Care: Make informed decisions with appropriate diligence.
Duty of Good Faith: Act honestly and in pursuit of the company’s best interests.
Who Serves on the Board?
Board composition changes as the company matures:
At Formation: Usually just the founders.
After Seed/Series A Financing: Often expands to include a representative from the lead investor and, sometimes, an independent director (e.g., one founder, one investor, one independent).
Later Stages: May grow to include additional independents with operational or industry expertise.
The Board vs. Management
The board determines the what and the why—the company’s strategic direction—while management determines the how and executes the plan. A strong board provides guidance, expertise, and accountability without micromanaging daily operations.
Disclaimer: This post is for general informational purposes only and does not constitute legal, tax, or financial advice. Reading or relying on this content does not create an attorney–client relationship. Every startup’s situation is unique, and you should consult qualified legal or tax professionals before making decisions that may affect your business.