Key Takeaways

  • The board of directors in a private company plays a more flexible, advisory role than public company boards, which operate under strict regulations and shareholder scrutiny.
  • Private boards often consist of founders, investors, and trusted advisors, while public boards must include independent directors with specialized expertise.
  • Governance responsibilities like strategic planning, fiduciary duty, and risk oversight exist in both, but public boards must follow additional compliance and disclosure requirements.
  • Private company boards can still benefit from adopting public company best practices such as independent oversight, formal governance committees, and structured performance evaluations.
  • As a company grows, board composition, authority, and responsibilities evolve, especially if transitioning from private to public status.

Comparison of a private vs. public board of directors reveals various similarities and differences between the two groups. While the boards of private and public companies are fundamentally similar in structure, they differ in the rigidity of their protocols and compliance requirements.

Overview of Public Versus Private Corporations

The two general categories of organizations are stock corporations and non-stock corporations. Stock corporations divide into public and private corporations:

  • Public corporations are large companies that actively trade on exchange markets such as the New York Stock Exchange. The general public typically knows about such companies because the media gives these companies generous coverage. Examples of public companies are Microsoft Corporation, Google, and Apple, among others. Public corporations must adhere to strict rules, and their revenue must reach the multimillion-dollar range.
  • Private corporations are smaller companies that don't participate in exchange markets and have fewer rules and requirements.

Organizational differences between public and private corporations dictate specific requirements for the boards of directors of both type of companies. While general rules and responsibilities, such as the duties of directors, election protocols, and meeting formats, are the same for private and public enterprises, the public boards of directors must follow many more elaborate procedures and requirements because of a greater liability.

The boards of public companies must consist of independent business executives with a wide range of expertise, such as:

  • Compensation
  • Compliance
  • Corporate strategies
  • Finances.

All board members must commit to at least 200 hours per year of meeting time.

Directors of a public corporation must present the issue to the board before voting a certain way. In a private corporation, directors can vote a particular way as long as there is no harm to:

  • The general public
  • Creditors
  • Minority shareholders.

Key Responsibilities of a Private Company Board

While both public and private boards oversee strategic direction, fiduciary obligations, and corporate governance, the board of directors in a private company often takes a more hands-on, strategic advisory role. Its core responsibilities typically include:

  • Strategic Guidance: Advising on long-term vision, growth opportunities, and market positioning.
  • Risk Oversight: Identifying key risks—financial, operational, and legal—and ensuring mitigation strategies are in place.
  • Capital and Fundraising Decisions: Guiding equity financing rounds, evaluating debt options, and approving major financial decisions.
  • Succession Planning: Assisting with executive recruitment, leadership transitions, and talent pipeline development.
  • Stakeholder Alignment: Representing the interests of shareholders, investors, employees, and sometimes customers to align company decisions with broader stakeholder value.

Unlike public boards, which are heavily focused on regulatory compliance and shareholder reporting, private company boards emphasize agility and tailored governance structures that suit the company’s size and growth stage.

The Culture of a Private Board of Directors

Private companies are typically family businesses or partnerships, and these close relationships determine the company's culture. Private companies may offer stock or shares, even without trading on the stock market. Often, the CEO is either the founder or the main shareholder.

Having the CEO as the major shareholder makes it impossible for the board to veto decisions or to fire the CEO. In a private enterprise, the board of directors usually plays the role of an advisor. Since private companies don't have to follow Sarbanes-Oxley (SOX) regulations, managers can control what information they share with the board.

Composition and Structure of Private Boards

The structure of a board of directors in a private company is often more flexible and less formalized than that of a public company. While public boards are legally required to include independent directors and specific committees, private boards can adapt their structure based on the company’s size, industry, and goals. Common roles include:

  • Founders and Executives: Frequently serve as directors and retain significant decision-making power.
  • Investor Representatives: Venture capital or private equity investors often take board seats to monitor their investments and influence strategy.
  • Independent Directors: Although not mandatory, including outside experts can provide valuable objectivity, governance experience, and industry insight.
  • Advisory Members: Some boards include non-voting advisors who contribute specialized knowledge without the formal responsibilities of directors.

This flexible structure allows private boards to focus more deeply on operational matters and long-term strategy rather than regulatory reporting.

Public Boards Face Increased Regulations and Scrutiny

According to SOX, public corporations must disclose their relationships with other companies and people to prevent any conflict of interest. Their boards of directors must be independent and highly qualified. The boards are in charge of:

  • Hiring the CEO.
  • Deciding on the CEO's compensation.
  • Strategic planning for long and short terms.

Public corporations must file their reports on time and make sure they are consistent to prevent any doubt whether the information is complete or correctly presented. They must offer a clear and detailed explanation about all numbers in the reports.

Governance and Compliance in Private vs. Public Boards

A critical distinction between private and public boards is the scope of governance and compliance obligations.

  • Public Boards: Must adhere to laws like the Sarbanes-Oxley Act, conduct regular financial reporting, maintain independent audit and compensation committees, and disclose conflicts of interest. Shareholder communications and quarterly earnings calls are also standard practices.
  • Private Boards: Are not subject to the same federal reporting requirements, allowing them to maintain confidentiality and make decisions more quickly. However, they are still bound by fiduciary duties (care, loyalty, and good faith) and must comply with applicable state corporate laws.

Even without mandatory regulations, many successful private boards voluntarily adopt governance best practices—such as establishing clear bylaws, creating audit or compensation committees, and conducting annual board evaluations—to improve accountability and prepare for future growth or a potential IPO.

Differences Between Serving on a Public and Private Company Board of Directors

  • Information disclosure is the main difference between public and private companies. Public companies must fully disclose their financial statements and have complete transparency of their relationships with other organizations and individuals. Having the complete information is often an issue for the boards of private companies. It happens because of outdated financial systems, management's excessive control of the information, the absence of internal systems, and other reasons.
  • Ownership also serves as another big difference between public and private companies. While public companies' boards are responsible for corporate strategizing and hiring or firing the CEO, boards of private ventures often act as advisors to the CEOs and have no power to veto a decision or to fire the CEO.

Director Liability and Fiduciary Duties

Directors of both public and private companies owe fiduciary duties to the organization, but the context and implications can differ:

  • Duty of Care: Directors must make informed decisions with diligence and due oversight.
  • Duty of Loyalty: Directors must prioritize the company’s and shareholders’ interests above personal gain.
  • Duty of Good Faith: All board actions should be taken with honesty, integrity, and a focus on the company’s success.

In public companies, violations of these duties can lead to regulatory penalties, shareholder lawsuits, and reputational damage. While private company directors face fewer public consequences, they can still be held personally liable for breaches, especially regarding mismanagement, self-dealing, or conflicts of interest.

What Private Companies Can Learn About Board Structure From Public Companies

  • Board independence: Compared to public companies' boards, boards of private companies tend to be smaller and less independent as they usually include owners, company lawyers, and accountants. Attracting outside directors is a good business practice, which allows the company to benefit from an outside perspective, independent decision-making, and accountability.
  • Board size: Larger boards have an advantage because of larger skill and expertise variability.

Evolving Board Roles as Companies Grow

As a private company scales, its board often evolves from an informal advisory group into a structured governance body. Early-stage companies may have boards consisting solely of founders and investors, but as the company matures, it benefits from:

  • Formal Committees: Establishing audit, compensation, or governance committees improves oversight.
  • Board Diversity: Adding directors with varied expertise enhances decision-making and reduces risk.
  • Performance Reviews: Implementing regular board self-assessments ensures accountability and continuous improvement.
  • IPO Readiness: Companies preparing to go public should gradually align their board composition and governance practices with public company standards.

This proactive evolution not only strengthens governance but also signals credibility to potential investors, partners, and acquirers.

Frequently Asked Questions

  1. Does a private company need a board of directors?
    Yes, most private corporations are legally required to have a board, though the size and structure are often more flexible than in public companies.
  2. Who typically serves on a private company’s board?
    Directors often include founders, investors, executives, and sometimes independent experts or advisors with relevant industry experience.
  3. What are the main duties of private company board members?
    They oversee strategy, approve major decisions, ensure fiduciary compliance, support fundraising efforts, and provide risk oversight.
  4. How does governance differ between private and public boards?
    Public boards face strict regulatory and disclosure requirements, while private boards operate with greater flexibility but must still uphold fiduciary duties.
  5. When should a private company add independent directors?
    It’s advisable as the company grows, seeks external funding, or prepares for an IPO, as independent directors improve oversight, credibility, and governance.

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