Start-up companies often have one director, the minimum required by law for a private limited company. The director may also be the main shareholder and the person who runs the business.
Board of directors
However, as the business grows a single director may not have enough time to cover all their responsibilities. In this situation, the business may decide to appoint a board of directors, with each director taking responsibility for a certain part of the business, eg human resources, finance, sales and marketing, or IT. What is the role of the board?
If you appoint a board of directors, you should ensure they fall within a clearly defined reporting structure. For example, the sales and marketing teams could report to a sales and marketing director who is responsible for strategy in that area.
Typically, a larger company might have a board structure as follows:
- A chairman - often non-executive - who oversees the whole business.
- A managing director - employed by the company - who runs the business and draws a salary. The managing director reports to the chairman and oversees the board of executive directors.
- A team of three executive directors - who sit on the board, draw salaries and manage key areas of the business, such as finance, sales and operations.
- Two non-executive directors - who advise on the strategic direction of the business and decide remuneration of executive directors. They may be paid fees.
Benefts of a clear board structure
Having a clear board structure allows shareholders to understand the roles of and reasons for appointing executive and non-executive directors. It is a good idea to have a senior, independent non-executive director as a point of contact for shareholder grievances.
Staff need to know who is responsible for which business areas and who they can go to if problems arise. In smaller companies, staff may well work alongside directors but as the company grows they may have less day-to-day contact.