19 May Who Are the Parties in a Corporation?
By: Barry E. Haimo, Esq.
May 19, 2016
Who Are the Parties in a Corporation?
When starting a business, you need to think long and hard about which organizational structure will best serve your needs. Do you want a sole proprietorship? A partnership? Some type of corporation? An LLC? There are benefits and drawbacks to each of these business types.
If you have decided your business or organization would be most successful as a corporation, it is important that you consider the new roles, parties, and positions you’ll need to fulfill the requirements of this type of business. Before any of these roles are filled, it is important to know the responsibilities attached to each of the parties in a corporation.
Shareholders, also known as stockholders, are individuals, trusts or business entities that own pieces of the corporation through shares of stock. Typically shareholders possess rights to control the management of the corporation. Therefore, their involvement in the corporation generally determines the direction of the business. Your company’s board of directors will have to tailor the objectives of your business to satisfy the shareholders.
Board of Directors
Shareholders elect a board of directors to govern a corporation. They are responsible for carrying out the corporation’s strategy, usually through the appointment of key officers. They are held accountable for the performance of the organization. In for-profit corporations, the board’s priorities are to maximize the value of the shares to the shareholders. In non-profit corporations, the board’s main priority is to operate efficient and effectively so as to benefit a public or private charity. In either case, the board of directors is responsible for communicating the use and source of the corporation’s budget and resources, deploying its resources usually through its team of officers, employees and contractors.
The board may consist of internal and external members. Internal members include the senior management of the corporation. External members do not work within the company, but regularly attend meetings and indirectly help manage the corporation. External members are put in place to provide a balanced and unbiased voice to meetings and management based on experience or expertise. Leading the board of directors is generally the chairman of the board. The chairman provides direct communication between the board and senior management. If no chairman is appointed, then usually the CEO or president will preside at all meetings.
Senior management often serves on the board of directors, but this is not always the case. The board of directors appoints the top management roles and relies on senior management to make sure the operations of the corporation run smoothly. Below are descriptions of the most important and most common senior management roles.
CEO (Chief Executive Officer). The Chief Executive Officer has the highest management role in a corporation. As they oversee and serve as the leader of senior management, the CEO reports directly to the board of directors. The CEO can also be elected as chairman of the board.
CFO (Chief Financial Officer). The CFO is the top number-cruncher in a corporation. At board meetings, the CFO delivers the corporation’s financial status based on the data, expenditures, and budgets that they manage. The CFO also reports directly to the CEO.
COO (Chief Operations Officer). The COO manages the daily business of the corporation, including the sales and marketing. Often the second in command, the chief operations officer reports directly to the CEO but has a more hands-on role.
The needs and size of a corporation may call for additional senior management roles, including:
- Chief Security Officer
- Chief Information Officer
- Chief Technology Officer
- Chief Strategy Officer
- Chief Administrative Officer
- Chief Procurement Officer
Shareholders are also considered stakeholders, but not all stakeholders are shareholders. Confused yet?
Basically, anyone who has interest in a corporation is considered a stakeholder of that corporation. Stakeholders include:
As corporate social responsibility becomes more important to organizations around the world, the role of stakeholders is being made a higher priority.
Corporations have social and financial responsibilities to their stockholders, stakeholders, and the general public. For further advice on appointing management and the roles within a corporation, call an experienced business planning attorney today.
Barry E. Haimo, Esq.