Q&A: Can Shareholders Attend Board Meetings?

The board of directors bears a huge responsibility for charting the path for the organization, but corporate board members aren’t the only party with that level of sway. 

Shareholders also have a fundamental role in designing the vision of a company and making key decisions about its future. Given their shared roles in governing the company, it’s fair to wonder: Can shareholders attend board meetings? 

This article examines the powers shareholders hold when it comes to attending board meetings, and explains how OnBoard software helps boards streamline operations and improve efficiencies. 

What is a Shareholder?

A shareholder is an individual, group, or legal entity that owns one or more shares of stock in an organization. You can become a shareholder by purchasing stock made available by the company, acquiring the shares of incumbent shareholders, or subscribing to the company’s constitution during incorporation.

Shareholder responsibilities include the right to attend certain meetings, inspect company records, and approve financial statements. 

Can Shareholders Attend Board Meetings?

In general, shareholders cannot attend board meetings. In fact, board meetings are typically reserved for the company’s board of directors, and, in some cases, key executives or advisors invited by the board. The purpose of a board meeting is to align on the strategic direction of the organization, and these discussions often involve confidential information. 

The up-and-down nature of the stock market incentivizes shareholders to consider the consequences of each decision on a short-term timeline, while the board of directors has the fiduciary duty to manage the company’s long-term future. Shareholders and senior management can discuss the status of the business during the organization’s annual general meeting (AGM).

Exceptions to the Rule

Board Members who are Shareholders

The most straightforward way for shareholders to attend closed board meetings is to serve on the board of the organization. Of course, this is easier said than done. Investors who hold both positions tend to acquire this control by owning a majority of the company shares. As a result, majority shareholders are usually one of the founders of the company or heirs to a founder. Because of the uneven power dynamic created by one person having so much influence over the decision-making process, most established companies try to avoid having majority shareholders at all. 

If a shareholder does have a seat on the board of directors, they and the other board members must be aware of the potential conflicts of interest that can arise from one person having this amount of control. 

Observers

The role of a board observer ebbs and flows, but the position offers another avenue for shareholders to become an active presence in board meetings. A board observer is an individual who has the right to attend and participate in board meetings as if they are a director. But the trade-off for that access is that observers don’t have the same voting rights as other board members. Observers may also be excluded from board meetings that deal with particularly confidential information. 

A shareholder may choose to step into this role to stand out from the crowd and make their voice heard during boardroom discussions without having to get involved in the day-to-day governance duties. This role also allows them to avoid the need to adhere to strict compliance regulations. Shareholders can then use the information they learn to raise, lower, or withdraw their investment whenever they see fit. 

Board observers are usually formalized through a shareholder’s agreement or a similar document. The position is often filled by people with a significant stake in the company, but there’s no external rule regarding who can and cannot be a board observer. 

Special Provisions

The operating agreement for every company includes a list of provisions that outline the structure of their operations and how senior management figures should properly conduct business. In addition to defining the schedule for regular meetings, the appointment of officers, and creating specific committees, the board can also create special carve-outs to allow shareholders to legally attend board meetings. The mechanism for making such amendments changes depending on the constitution of each company. Voting can be determined with a simple majority, but unanimous approval may be required.

Information Rights

Information rights define the legal requirements regarding the collection, access, and control of information. These policies help an organization determine its information security and records management strategy. 

Company obligations and shareholder rights are detailed in an investor rights agreement, a document used to help investors monitor performance. The investor rights agreement usually outlines provisions such as: 

• The schedules with which a company should provide financial statements (e.g. annual, quarterly, or monthly) 
• Periodic capitalization tables
• A shareholder’s right to inspect company books and records
• An annual budget and business plan
• Registration rights

Information rights are typically created for the benefit of major shareholders, who could use the IRA as an entryway to board meetings and/or receive board materials, such as a copy of the board meeting minutes. The appointment of a board observer can also be included in an IRA.

OnBoard Powers Corporate Boards

Shareholders have a few ways of legally attending board meetings, but most investors will not hold a seat during these gatherings. However, it’s still imperative that management leaders forge a healthy working relationship with shareholders.

To accomplish this, all parties need to communicate with each other consistently and be transparent about their knowledge and opinions. OnBoard’s board portal software provides a key platform for the boards of corporate businesses, local governments, nonprofits, schools, and banks to collaborate and conduct more productive meetings. 

OnBoard offers several features to assist your organization at each step of the meeting process, such as:

• Built-in Zoom integration
• Secure messaging system
• Customizable minutes builders that allow you to take corporate minutes within the platform
• Engagement analytics
• Board assessments with real-time progress tracking

Download our free Board Meeting Minutes Template for a closer look at OnBoard services.