Who Are the Major Parties in a Corporation?
By: Barry E. Haimo, Esq.
April 8, 2021
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, you should then consider the new roles, parties, and positions you’ll need, as well as the responsibilities attached to each of these.
In this post, we’re going to break down the major parties in a corporation and explain what each of them do.
Shareholders, also known as stockholders, are individuals, trusts, or business entities who own pieces of the corporation through shares of stock. Typically, shareholders possess rights to control the management of the corporation.
Because of this, 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. This board is responsible for carrying out the corporation’s strategy, usually through the appointment of key officers. They are also held accountable for the performance of the organization.
In for-profit corporations, the board’s priority is to maximize the value of the shares to the shareholders. In non-profit corporations, their priority is to operate efficiently 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, and
- 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 their experience or expertise.
The chairman of the board generally leads the board of directors. This individual 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. Since 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 reports directly to the CEO.
COO (Chief Operations Officer). The COO manages the daily business of the corporation, including sales and marketing. Often the second in command, the chief operations officer reports directly to the CEO.
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:
Corporations have social and financial responsibilities to their stockholders, stakeholders, and the general public. As corporate social responsibility becomes more important to organizations around the world, the role of stakeholders is being made a higher priority.
For further advice on appointing management and the roles within a corporation, call an experienced business planning attorney today.
Originally published 5/192016. Updated 4/8/2021.
Barry E. Haimo, Esq.
Strategic Planning With Purpose®
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