How is a Corporation Governed?

The two most common types of entities formed by new business owners are the corporation and a limited liability company (LLC). This blog will focus on how a corporation is governed, but please check back for our next blog discussing how a LLC is governed.

Shareholders

A corporation is owned by shareholders who each own a certain amount of stock in the company. The shareholder’s percentage of ownership corresponds directly to the number of shares of stock he or she owns out of the total issued shares. The shareholders vote and elect a board of directors to manage and control the company. A shareholder may also be a director, but it is not required.

Board of Directors

Some states permit the board of directors to consist of only one director, but others require more than one. All of the major decisions of the corporation are made by the board and approved by a vote. All board meetings must be documented by the minutes of the meeting being taken. The board’s decisions are recorded as a formal resolution.

Officers

The board of directors, delegates the daily operation and management of the company to officers. The officers are responsible for implementing the decisions made by the board. An officer does not have to be a shareholder or a director. As a result, the shareholders, directors and officers could all consist of different people, but in most circumstances there is usually overlap.

Governing Documents

A corporation is governed by a certificate of incorporation, which is also commonly referred to as articles of incorporation or a charter, and a set of bylaws. The bylaws outline the procedures for electing the board of directors and voting requirements. Shareholder agreements are often used to establish the rights and obligations the shareholders have to each other and to the entity. Most corporate entities are required to have yearly shareholder and/or board meetings, even if there are no significant business issues to discuss.

The above is a simplified explanation of how corporations are governed. You can see that corporate governance is formal and structured, which can assist in streamlining the decision-making process. To learn more about whether or not a corporation is the best type of entity for your new business, contact our office to schedule an initial consultation.

At Nielsen Law Group, we will not only help assist with what is the best structure for your business, but will also aid with the additional details that will foster a strong foundation and get you started on the road to success. You can schedule your initial consultation by calling (480) 888-7111 or submitting a web request here.