Corporate Structure: Directors, Officers, and Shareholders

Introduction to Corporate Structure

A corporation is a form of business structure that is granted the same basic rights and duties as an individual. This legal status shields members of the corporation from some liability for the corporation's actions, but also prevents them from using corporate assets in the same way one would use personal assets. There are some differences between publicly held and privately held corporations; however, the basic structure of a corporation remains the same regardless of how it is held.

The Board of Directors

There are three main groups in the corporate structure. The first group consists of the directors of the corporation. The second group consists of the officers of the corporation. The third group consists of the shareholders of the corporation. Individuals may belong simultaneously to more than one of these groups, but each group carries different responsibilities.

When forming a corporation, directors are usually drawn from the group of people who establish it. However, the articles of incorporation specify how directors are to be chosen; generally, this is done by election by shareholders. The board of directors is responsible for managing the corporation's actions. "The board of directors also has ultimate legal responsibility for the actions of the corporation and its subsidiaries, officers, employees, and agents" (Findlaw, 2011). Directors have a duty to act in the best interests of the corporation, to act with loyalty to the corporation and its shareholders, to participate in regular meetings, to engage in a certain amount of daily business for the corporation, and to amend the corporate bylaws or articles of incorporation (Findlaw, 2011).

A board of directors may vary in size; in fact, it may be composed of a single director. Generally, the board will consist of two types of representatives: people from inside the company and people from outside the company. Board members can typically be divided into three categories. "The chairman of the board is responsible for running the board smoothly and effectively. His or her duties typically include maintaining strong communication with the chief executive officer and high-level executives, formulating the company's business strategy, representing management and the board to the general public and shareholders, and maintaining corporate integrity" (Investopedia, 2009). Inside directors are those who are part of the corporation's actual management team and can provide an internal perspective for the board (Investopedia, 2009). Outside directors are not otherwise employed by the corporation and are able to provide an external perspective on proposed actions (Investopedia, 2009).

Corporate Officers

While the board of directors retains ultimate responsibility for the corporation's actions, it is not generally involved in the corporation's day-to-day activities. Instead, "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" (Findlaw, 2011). Not every corporation has the same set of officers; however, there are some positions found in most corporations. These typically include the chief executive officer (CEO) or president, the chief operating officer (COO), the chief financial officer (CFO) or treasurer, and the secretary. It is important to note that a single person may fill multiple roles.

Each officer position carries a unique function. The chief executive officer bears ultimate responsibility "for the corporation's activities and signs off on contracts and other legally binding actions on behalf of the corporation" (Findlaw, 2011). The chief operating officer "usually reports directly to the CEO" (Findlaw, 2011). The chief financial officer "is responsible (directly or indirectly) for almost all of the corporation's financial matters" (Findlaw, 2011). The secretary is "in charge of maintaining and keeping the corporation's records, documents, and minutes from shareholder meetings" (Findlaw, 2011).