How To Understand The Roles In A Corporation

By Dan Handle, 22 Jan 20:20

By definition, a corporation is legally a separate entity from the individuals who own and operate it. You may own all the stock in your corporation, and you may be its only employee, but you and your corporation are separate.

Because a corporation is a legal entity, the way it is organized and operated is governed by very specific state laws, which vary from state to state. Fortunately, the similarities in corporate procedures and elements across the country outweigh the differences.

The best way to understand exactly how to set up and operate a corporation is to familiarize yourself with your state's laws (the rules) and also the traditional roles required. These include:

incorporator(s)
shareholder(s)
director(s)
officer(s)
employee(s)

Incorporators. Called promoters in some states, incorporators do the initial prep work. Though this can include bringing together the people and the money to create the corporation, it always includes preparing and filing the articles of incorporation, the formal incorporation document that is filed with a state office.

After filing, duties remaining to the incorporator can include selecting a board of directors and adopting corporate bylaws (although, in some states, bylaws may be adopted by the directors). Although several people can serve as incorporators and sign the articles of incorporation, all states but Arizona have adopted legislation that permits a corporation to be formed by a single incorporator (Arizona requires a minimum of two).

Shareholders. Shareholders own the stock of the corporation. A shareholder can also be one person who owns 100% of the stock. Duties include:

-Electing directors (although the initial board of directors is usually selected by the incorporator)

-Amending bylaws

-Approving the sale of all or substantially all of the corporate assets

-Approving mergers and reorganizations

-Amending the articles of incorporation

-Removing directors

-Dissolving the corporation

State laws typically require that the shareholder(s) hold an annual meeting. However, in many states, a "consent action" (or "consent resolution," a document signed by all of the shareholders) can be used in place of a formal meeting.

Directors. Depending on your state's specific law, the incorporators or shareholders decide how many directors the corporation will have. The number of directors is usually stated in the articles of incorporation or in the corporate bylaws. Most states specifically permit corporations to have just one director. In the remaining states, the requirement is that there be at least three directors, but there are exceptions for corporations with fewer than three shareholders. (For example, if there are only two shareholders, the corporation can operate with two directors; if there's only one shareholder, the corporation needs only one director).

-Responsibilities of a director include:

-Managing the corporation and make major policy decisions

-Authorizing the issuance of stock

-Deciding on whether to mortgage, sell or lease real estate

-Electing the corporate officers

Like shareholders, directors may hold regular or special meetings (or both). They can also choose to take actions by signing a "consent resolution" ("consent action") document.

Corporate Officers. They are normally responsible for the day-to-day operation of the corporation. State laws usually require that the corporation have at least a president, a secretary and a treasurer. The president is usually the chief operating officer (COO) of the corporation. The secretary is responsible for the corporate records. The treasurer is responsible for the corporate finances, although it's common to hand day-to-day duties to a bookkeeper. The corporation can have other officers, such as a vice-president. In most states, one person can hold all of the required offices.

Employees. Naturally, employees work for the corporation in return for compensation provided to them through salaries and company benefits. In small corporations, the owners (shareholders) are also usually employees of the corporation.

For more information on state laws and the process of forming a corporation, see
How-To Incorporate Your Business.

Tags: corporations director officer roles