What is the difference between a board member, a board observer, and an advisor?
Takeaway: A board member has a fiduciary duty and voting power, a board observer has a seat at the table but no vote, and an advisor is an informal counselor with no governance rights; understanding these distinct roles is critical for managing your company's governance.
As your startup grows, you will bring on a range of senior people to help guide the company. It is absolutely essential to understand the clear legal and operational distinctions between the three primary roles these individuals will occupy: a board member, a board observer, and an advisor. These are not interchangeable titles; they represent three vastly different levels of power, responsibility, and legal duty.
The Board Member (or "Director")
The Role: A member of the Board of Directors is the highest-level position. The board is the formal, legal governing body of the corporation. Board members are not just counselors; they are decision-makers.
The Power: Directors have voting power. They vote to approve major corporate actions, from financings and budgets to the hiring and firing of the CEO.
The Legal Duty: This power comes with a significant legal obligation. A director has a fiduciary duty to the corporation and all of its stockholders. They must act with care and loyalty and can be held personally liable if they breach that duty.
The Board Observer
The Role: A board observer is exactly what the name implies: they get to "observe" the board. This is a contractual right, often granted to a major investor who did not get a formal board seat, that allows them to attend all board meetings and receive all the materials that are sent to the board members.
The Power: A board observer has no voting power. They can participate in discussions and offer their opinion, but they have no formal say in the board's decisions. They are there to stay informed.
The Legal Duty: A board observer has no fiduciary duties to the company. However, they are almost always required to sign a confidentiality agreement, obligating them to keep all information they learn in the board meetings strictly confidential.
The Advisor
The Role: An advisor is an informal, strategic counselor to the company. Their role is to provide their expert advice and to make introductions from their professional network. They are typically experts in a specific area, such as technology, marketing, or a particular industry.
The Power: An advisor has no governance rights whatsoever. They do not attend board meetings (unless specifically invited for a particular discussion), and they have no voting power.
The Legal Duty: An advisor has no fiduciary duties. Their relationship is governed by a simple advisor agreement that outlines their responsibilities and their compensation (which is typically a small grant of equity).
Understanding these distinct roles is critical for good governance. It allows you to grant the appropriate level of access and authority to your investors and counselors, ensuring that your decision-making structure is clear, professional, and legally sound.
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.