A typical corporation’s structure consists of three main groups: shareholders, directors, officers. The roles and responsibilities of these groups are described in more detail below.
A corporation’s shareholders, sometimes known as “stockholders,” have an ownership interest in the company by having money invested in the corporation. A “share” is an apportioned ownership interest in the corporation, and the value of a single share can range from less than a 1% interest in the corporation, to 100%.
When a corporation is first formed, its original owners are usually its first shareholders, and in smaller corporations these initial investors may remain the sole shareholders throughout the corporation’s existence. In a smaller corporation, the few shareholders may consist of those involved in day-to-day business operations (as owners, managers or employees), and even one person may also serve as the business’s sole director, officer, and shareholder. Where larger corporations are concerned, private investors (or members of the general public if the corporation “goes public”) may decide to invest money in the corporation at any time, and will generally only become shareholders. Whatever the number of shareholders in a corporation, each shareholder usually receives a stock certificate from the corporation, identifying the number of shares held by such shareholder.
Corporations are usually required by law to hold annual shareholder meetings, at which the shareholders will elect the corporation’s directors. Special shareholder meetings may also be held in rare situations, when significant corporate actions require shareholder approval — including major transactions and changes in the corporation. A corporation’s articles of incorporation and bylaws (combined with state law requirements) usually set forth shareholder voting rights and procedures.
- Board of Directors
One of the first steps a new corporation will take is to name the members of its board of directors. Usually, directors are selected by the person who takes the initial step of incorporating the business. Once the corporation is up and running, directors are typically elected by shareholders at annual meetings.
The role of the board is to monitor a corporation’s managers, acting as an advocate for stockholders. In essence, the board of directors tries to make sure that shareholders’ interests are well served.
As suggested by its name, the board of directors “directs” the corporation’s affairs and business path. The board of directors also has ultimate legal responsibility for the actions of the corporation and its subsidiaries, officers, employees, and agents. A corporate director’s duties and responsibilities typically include:
- Acting on behalf of the corporation and its best interests with an appropriate “duty of care” at all times;
- Acting with loyalty to the corporation and its shareholders;
- Participating in regular meetings of the board of directors;
- Approving certain corporate activities and transactions — including contracts and agreements; election of new corporate officers; asset purchases and sales, approval of new corporate policies; and more;
- Amending the corporation’s bylaws or articles of incorporation.
- Voting and electing the corporate officers.
The number of directors serving on a corporation’s board usually depends in part on the size of the business and its holdings, but this number is typically stated in the corporation’s articles of incorporation and/or bylaws. A small corporation might have one director (who may also serve as the sole officer and shareholder), while a large corporation may have 10 or more people serving on its board of directors. A board of directors can have annual or special meetings on their own as described in the bylaws or state statutes to conduct any pressing business. For voting purposes, a corporation with more than one director should keep an odd number (3, 5, 7, etc.) of directors on its board.
- Corporate Officers
The corporation’s officers oversee the business’s daily operations, and in their different roles they are given legal authority to act on the corporation’s behalf in almost all lawful business-related activities. Officers are usually appointed by the corporation’s board of directors, and while specific positions may vary from one corporation to another, typical corporate officers include:
- Chief Executive Officer (CEO) or President. The CEO has ultimate responsibility for the corporation’s activities, and signs off on contracts and other legally-binding action on behalf of the corporation. The CEO reports to the corporation’s board of directors.
- Chief Operating Officer (COO) or Vice President. Charged with managing the corporation’s day-to-day affairs, the COO usually reports directly to the CEO.
- Chief Financial Officer (CFO) or Treasurer. The CFO is responsible (directly or indirectly) for almost all of the corporation’s financial matters.
- Secretary. The corporation’s Secretary is in charge of maintaining and keeping corporation’s records, documents, and “minutes” from shareholder and board of director meetings.
Together, officers and the board of directors have the ultimate goal of maximizing shareholder value. In theory, officers look after the day-to-day operations, and the board ensures that shareholders are adequately represented. However, the reality is that many boards consist of management in smaller corporations; two to three shareholders may represent all positions, or one person could serve as the business’s sole director, officer, and shareholder. But the bottom line with all corporations is that the majority shareholder makes the decisions.