05 Nov Who Are the Key Corporate Players?
A corporation must act through human beings who wear various hats and are given various degrees of authority to act for and on behalf o the corporation. Here’s a brief description of the key players:
The incorporator is the person who actually forms the corporation, signs the articles of incorporation and does all the administrative things necessary to form the company. Usually, the incorporator is the driving force behind the new business or an attorney who represents that person.
The registered agent of a corporation is the person identified in the state’s corporate records who is authorized to receive service or process in legal proceedings involving the corporation. So if someone wants to sue a corporation, they can check out the state’s records, secure the name and address of the registered agent and then serve that person.
The shareholders of the corporation are the owners of the company, the ones who buy and own the stock of the corporation. In public companies there are thousands of shareholders who regularly trade the corporation’s stock. In closely held corporations, there might be only one shareholder or a few shareholders, and stock transfers are a very rare event as we’ve previously mentioned. The shareholders of a corporation elect the board of directors, approve major transactions, mergers and the like, and sometimes approve specific shareholder proposals. The shareholders do not manage the affairs of the company. Although as we’ll explain shortly in closely held corporations, the shareholders of the corporation may agree in writing to various deal points relating to the operation of the company that will preempt the ultimate authority of the board of directors.
The board of directors is the ultimate management authority of a corporation. State laws mandate that it manages the affairs of the company. Its members are elected by the shareholders. One board member is typically designated as the chairman, the leader of the board. Those who control the board typically control the corporation. The board members may also be shareholders and officers although they don’t have to be. All public corporations and many closely held corporations have outside directors, those who do not work for the company. The board of directors elects the officers of the corporation and generally manages and improves all important matters relating to the affairs of the business.
Often there are subcommittees of the board that are empowered to deal with specific matters, popular subcommittees including a compensation committee which deals with officer-related compensation issues and an audit committee which deals with all accounting and audit matters. Actions taken and approved by the board of directors are reflected in written resolutions of the board. These official resolutions can be approved and adopted by the board voting on them at a meeting or they can all be approved by the board members unanimously signing a written consent resolution. This written consent option which is very popular in closely held corporations makes it possible for the board to unanimously adopt resolution without having to hold a meeting. It really helps in efficiently keeping the corporate minute book up to date.
The board members have a duty to manage the corporation for the benefit of the shareholders. It is a very high fiduciary duty that includes a duty of care and a duty of loyalty. The duty of care imposes on each director a responsibility to act in good faith and in a manner that the director believes is in the best interest of the shareholders. This duty is softened by a well established doctrine called the “business judgment rule” which provides that absent self-dealing or a breach of loyalty, a director is presumed to have acted in good faith and in the best interest of that shareholders. This presumption of course can be rebutted if the facts are strong enough.
The duty of loyalty requires a director to place the best interest of the corporation above personal interests. A violation of this duty may surface when a director engages in self-dealing with the corporation or personally usurps business opportunities that should have first been offered to the corporation. A breach of any of these duties may expose a director to a claim from the shareholders of the corporation.
The officers of the corporation are the ones who actually run the business, work every day to carry out the authority delegated to them by the organizational documents of the corporation the board of directors. Key officers include the president and chief executive officer, the CEO, the head honcho of the whole operation; the chief operating officer, the COO, the person in charge of operations; the chief financial officer, the CFO, the head money person in the corporation; the secretary of the corporation; and the treasurer of the corporation. Often a single person wears multiple hats. The CFO, for example, may also be the secretary and the treasurer of the company. Plus the title of vice president is often used with many key players in the company with all kinds of modifying adjectives. Examples: Senior VP in Charge of Hiring, Executive VP in charge of East Coast Operations. You name it. In the corporate world, titles are a big deal and the combinations of available title are limitless.
Then there are the employees, those who work for the corporation but are not officers. They are managed by the officers of the company. So much for the players, let’s turn to how a corporation is formed and the key organizational documents.