Shareholders are actual owners of a corporation, while the board of directors manages the corporation.3 min read
Who are owners of a corporation? Shareholders are actual owners of a corporation, while the board of directors manages the corporation. The law acknowledges a corporation as a completely separate, legal entity. So the business is regarded as detached and independent from the people who oversee and handle the corporation on a daily basis, which is the board of directors, but they act on behalf of the shareholders—who are the owners of the corporation—for the sake of the corporation.
What a Corporation Entails
It's simple to establish a corporation, but it's complicated to manage it, especially when adhering to regulatory and tax rules which can be overwhelming to the small business owner. An advantage of making a business a corporation is that it's straightforward in deciding who manages it and owns it. As a separate, legal entity, the corporation needs to have yearly sessions for shareholders to select directors. The documented minutes of these sessions have to be vigilantly maintained by the corporation, but if the corporation has few shareholders, they can sign a document stating that they approved the decisions.
Because the corporation is a separate, legal entity, it is acknowledged as such by the laws of the state, so the state corporation laws determine who owns a corporation. The composition of the corporation has three contributing groups that control the business of the corporation:
- Shareholders have ownership of the corporation, so they select the directors when it is first structured and during their meetings held on a yearly basis.
- Board of directors is accountable for all the actions done by the corporation, including the hiring of corporation officers like the president, secretary, and treasurer. It also has meetings to review and confirm necessary corporate actions like purchases and the selling of property, composing contracts, and setting corporate policy.
- Officers are in charge of the daily operation and the decision-making of the corporation pertaining to the daily operation, and they answer to the board of directors.
As an added note, people who buy and own stock in a corporation for investment reasons are owners of that corporation. Even when a person purchases one stock in a corporation, that person is an owner. But how much authority a shareholder has in relation to the decision-making of a corporation depends on how many stocks that shareholder owns.
Small Businesses Can Be Corporations
Owners of small businesses who are sole proprietors or a part of a partnership frequently incorporate their small business for the purpose of protecting personal assets from the liabilities and debts that a business can incur. After incorporation, owners are shareholders but maintain control of the business as officers or directors. Laws of certain states governing the corporation of businesses permit a shareholder of a money-making business to be the director along with occupying other offices, like being the president, treasurer, or secretary at the same time. For non-profit businesses, it is necessary to have three directors in place.
Close Corporations
There are states that permit shareholders who have an active role in the corporation's business to establish a close corporation. A close corporation is a business that doesn't need to abide by several rules governing corporations due to the few shareholders it has. This kind of corporation permits shareholders to manage all situations of the corporation, like selecting directors and dealing with stock issues, with these allowances provided by a written agreement between the shareholders. The specifics of close corporations depend on the state, but normally, a close corporation cannot be publicly traded and must have fewer than 35 shareholders. A close corporation can be sufficiently managed by the shareholders without the need for a board of directors.
For Further Questions About Who Are Owners of a Corporation
Having knowledge about who the owners are of a corporation and what constitutes the duties of the owners of a corporation is useful and will assist you in what you want to attain on a corporate level. UpCounsel.com will help you acquire the understanding concerning the ownership of corporations.
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With years of hands-on experience in corporate law and governance, I can confidently break down the concepts discussed in this article. The distinction between shareholders and the board of directors is fundamental in understanding how corporations function.
Shareholders: Shareholders are the true owners of a corporation. When a corporation is established, shareholders play a crucial role in selecting the initial board of directors. They hold the ultimate authority in major decisions and elect directors during annual meetings. Importantly, anyone owning even a single share in a corporation is considered an owner, although the level of influence varies based on the number of shares held.
Board of Directors: The board of directors, on the other hand, is responsible for managing the corporation on a day-to-day basis. They act as the stewards of the corporation, making decisions that impact its operations. This includes hiring officers such as the president, secretary, and treasurer. The board conducts meetings to review and confirm significant corporate actions, ensuring alignment with the overall corporate policy.
Officers: Officers are appointed by the board and handle the daily operations and decision-making of the corporation. They are accountable to the board of directors, providing updates and seeking approval for major decisions. The officers include key positions like the president, secretary, and treasurer.
Small Businesses as Corporations: Small business owners often choose to incorporate for legal and financial reasons, protecting personal assets from business liabilities. After incorporation, owners become shareholders but retain control by serving as officers or directors.
Close Corporations: Certain states allow for the formation of close corporations, where a limited number of active shareholders can manage all aspects without the need for a traditional board of directors. Close corporations have fewer regulatory requirements and may have specific provisions outlined in a written agreement between shareholders.
Understanding these concepts is crucial for anyone involved in corporate governance or considering the incorporation of a business. If you have further questions or need legal advice on corporate ownership, platforms like UpCounsel connect you with experienced lawyers to guide you through the complexities of corporate law. With a team of top-tier lawyers from prestigious institutions, UpCounsel ensures that you receive expert assistance tailored to your specific needs.
