By Kathryn Keefer
While both a Board of Directors and an Advisory Board play important roles in the success of a startup, their responsibilities, authority, and purpose are quite different. Understanding these distinctions can help founders establish the right structure at the right stage of growth.
The Board of Directors serves as the governing body of the company. Its members are legally appointed to oversee management, ensure accountability, and protect the interests of shareholders or stakeholders. This group makes formal decisions about the company’s direction like approving budgets, hiring or removing executives, authorizing major transactions, and setting strategic goals. Importantly, directors have a fiduciary duty to act in the best interests of the company and its shareholders, meaning they carry legal obligations and potential liability for their decisions. In short, the board of directors doesn’t just advise, it governs.
The Advisory Board, on the other hand, is a non-governing body designed to guide, mentor, and provide expertise. Advisors are typically chosen for their specific experience, such as industry knowledge, technical skill, or access to networks, and they contribute insight without the legal or fiduciary responsibilities of directors. An advisory board can be a flexible and powerful way for early-stage startups to access seasoned guidance without the formalities of board governance. Advisors help founders navigate challenges, validate strategies, and open doors, but they cannot make binding decisions or act on behalf of the company.
For many startups, an advisory board serves as an incubator for talent and wisdom, providing diverse perspectives and credibility, while the board of directors handles formal oversight and accountability. As the company grows, it’s common for advisory board members to evolve into directors or investors once the business matures and governance needs expand.