editione2.1.1Updated September 12, 2022
Definition A corporation has a board of directors, a group of people whose legal obligation is to oversee the company and ensure it serves the best interests of the shareholders. Public companies are legally obligated to have a board of directors, while private companies often elect to have one. The board typically consists of inside directors, such as the CEO, one or two founders, or executives employed by the company, and outside directors, who are not involved in the day-to-day workings of the company. These board members are elected individuals who have legal, corporate governance rights and duties when it comes to voting on key company decisions. A board member is said to have a board seat at the company.
Boards of directors range from 3 to 31 members, with an average size of 9; for private companies the typical board size is typically between 3 and 7 directors.* Boards are almost always an odd number in order to avoid tie votes. It’s worth noting that the state of California requires public companies to have at least one woman on their boards.*
Key decisions of the board are made formally in board meetings or in writing (called written consent).* Equity grants have to be by the board of directors.*
Definition A private company becomes a public company in a process called an initial public offering (IPO). Historically, only private companies with a strong track record of years of growth have considered themselves ready to take this significant step. The IPO has pros and cons that include exchanging a host of high regulatory costs for the benefits of significant capital. After a company “IPOs” or “goes public,” investors and the general public can buy stock, and existing shareholders can sell their stock far more easily than when the company was private.
Companies take years to IPO after being formed. The median time between a company’s founding and its IPO has been increasing. According to a Harvard report, companies that went public in 2016 took 7.7 years to do so, compared to 3.1 years for companies that went public in 1996.*