An individual who is permitted to attend and participate in meetings of the board of directors and to receive all information provided to members of the board (including minutes of board meetings), but who is not permitted to formally vote on matters submitted for a vote.

A board observer right is contained in a stockholders agreement or side letter and is commonly granted in connection with a private equity or venture capital transaction, such as a leveraged buyout or minority investment. In these transactions, a board observer right is often provided to the investor in addition to or in lieu of the right to designate one or more board seats. A board observer right is requested for a variety of reasons, including the:

Because board observers are not formal members of the board, they do not owe fiduciary duties to the company. However, a board observer typically has the same confidentiality obligations as members of the board. In addition, board observers usually can be excluded from meetings to preserve the company's attorney client privilege, particularly when the board is discussing potential litigation or if there is a potential conflict of interest.

For a discussion of the fiduciary duties of directors, see Practice Note, Fiduciary Duties of the Board of Directors. For an overview of a buyout or a minority investment, see Practice Notes, Buyouts: Overview and Minority Investments: Overview.