The Hierarchy of a Company ~ Levels of Power in the Company

The running of a limited company is entrusted to a board of directors whose members are elected by shareholders. As stated earlier, it is necessary to understand that a Board of Directors does not actually run the company on day to day basis. For this purpose, a team of professionals is hired. Such a team forms the management of the company who looks after its day to day operations. Hence, running a company involves two set of persons: the Board of Directors and Management.

The Board of Directors generally formulates the policies which are implemented by the Management. There are of course over-laps in the functions of these two teams. Some members of the management team may also be members of the Board of Directors. Such directors are known as Executive Directors. Management reports to the Board of Directors while the Board of Directors reports to the shareholders.

Thus the hierarchy of a company comprises of the following three stages:

First Stage: 

Management is appointed by, takes its directions from and reports to the Board of Directors. It runs the company on a day to day basis.

Second Stage: 

Board of Directors is elected by and reports to the shareholders. It provides the overall guidance for running the company, draws up its policies and appoints the management.

Third Stage: 

Shareholders who are the owners of a company hold the ultimate power to make decisions about the affairs of the company. They elect the directors, usually from among themselves, to provide the overall guidance for running the company.