1. What Are the Tax Implications of Appointing Corporate Officers?
2. How Are Corporate Officers Appointed and Defined?
3. Is a Vice President Considered a Corporate Officer?

A corporate officer is a business executive that is assigned specific responsibilities in the daily operation and overall direction of the organization. Some corporations do not distinguish between employees and officers, which means that the officers have more authority than other types of employees but still answer to the board of directors. Other types of officers do not qualify as employees. It's important to get this distinction correct to avoid tax and legal issues.

Common types of officers include the chief executive officer (CEO), chief financial officer (CFO), and chief operations officer (COO). These individuals can be replaced or fired by the corporate directors. Other officers, such as a vice president, may also be appointed.

What Are the Tax Implications of Appointing Corporate Officers?

  • The IRS considers an officer an employee if he or she works for the company in any capacity. 
  • Owner-officers that do not participate in the administration of the business but accept profit distributions are not considered employees. 
  • Many states have regulations about who qualifies as an officer. You can establish additional guidelines in the charter and bylaws of your corporation. 
  • S corporations must be sure to pay officer-employees reasonable salaries rather than giving them large distributions to avoid payroll taxes
  • Companies that bend these rules will be audited by the IRS. 
  • For an S corporation run by a sole proprietor, the sole proprietor must determine a personal salary that is appropriate for his or her role. You must be able to justify this salary by industry standards. 
  • When the IRS disagrees with the salary determination for an officer, past distributions can be reclassified as wages and are thus subject to payroll taxes. 

How Are Corporate Officers Appointed and Defined?

Officers can be directors or shareholders, but they don't necessarily have to be. A company can have any number of officers and, in most cases, a person can hold any number of offices, or even every office of a company. 

State law typically indicates that corporate officers, such as the president, vice president, CEO, and CFO, can legally act on behalf of the corporation, including contract authority. Your company can establish procedures for appointing corporate officers and determine the number of votes needed to remove these officers, as well as whether removal requires cause.

If an officer resigns or is voted out of his or her position, contractual obligations that he or she signed on behalf of the company remain valid.

Is a Vice President Considered a Corporate Officer?

When determining whether the vice president of your company is considered an officer, you must review both the official company records and the state laws governing your specific type of business entity. The company's existing precedent also plays a role in this determination.

Some states dictate that certain positions, such as the president, CEO, secretary, or treasurer, must be considered officers. The company records, which include the articles of organization, articles of incorporation, operating and shareholder agreements, bylaws, member control agreements, and official recorded actions. These documents may designate how a vice president and other officers should be categorized.

In many cases, the court will consider how vice presidents have been treated by the company in the past. If they have typically been treated as officers, this will be treated as established precedent, especially if the question is not answered by corporate documents or state laws. 

Another closely-related issue is whether a vice president has the authority to sign contracts on behalf of the company, a role known as an agent. 

If you need help with appointing or defining corporate officers for your business, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.