Board of Directors vs. Advisory Board

Advisory boards can be an invaluable source of insight. Think of an advisory board as a collection of mentors that can provide individual expertise, provide you a sounding board for ideas, give you advice, introduce you to valuable contacts, and tell you when you’re potentially making a mistake. There are three levels of oversight of a company each with different roles and legal responsibilities:

• a formal board of directors, with voting rights on important decisions and certain legal liabilities;
• advisory boards that can provide non-binding industry insight without liability; and
• people with observation (but not voting) rights — the right to sit in, listen and even offer insight at boardroom discussions as the board of directors makes key decisions.

Keep in mind that an advisory board is not the same as a board of directors. A board of directors is formal mechanism that has a legal role and authority. They are elected by the shareholders and act as shareholder representatives and have certain legal and business powers An advisory board doesn’t have any official authority. In addition, any company can have an advisory board, but they’re not mandatory. Public companies, on the other hand, are required to have a board of directors. And while advisors typically meet with the company leaders intermittently, the board of directors must meet at scheduled times.