Corporate Roles and Responsibilities
Defining corporate roles and responsibilities is the most important part of starting your corporation.3 min read
2. Board of Directors' Major Responsibilities
3. Responsibilities of the Corporation
Defining corporate roles and responsibilities is the most important part of starting your corporation. Regardless of your corporation's purpose or its size, there are generally four groups of people in your company:
Each of these groups will have their own rights and duties, and in some cases, one person can serve multiple roles.
Basics of Corporate Roles
Shareholders are some of the most important people in your corporation. Their primary duty is to elect a board of directors, and they also have the power to remove board members. Shareholders are also responsible for several other important corporate tasks:
- Making changes to corporate bylaws and the Articles of Incorporation.
- Voting on company mergers.
- Approving reorganizations.
- Agreeing to asset sales.
In most states, corporations are required to hold an annual shareholders meeting where such matters may be discussed and voted on.
The role of the board of directors can be confusing to those unfamiliar with the corporate structure. While it's true that corporate directors don't actually participate in the day-to-day operations of the company, they are responsible for running the corporation. Directors appoint and remove company officers and make decisions related to the company, including when and how to issue stock. Protecting shareholders' interests is the primary duty of directors.
Your Articles of Incorporation will outline the number of directors your company has. You may, however, need to comply with certain state requirements. In California, for example, corporations must have at least three directors.
The officers handle daily company operations. California corporations must have at least three officers with the following titles:
Each of these officers has their own responsibilities. Treasurers handle the finances of the company, and the secretary is responsible for record keeping. The president deals with the company's regular activities. Corporate officers answer to the board of directors and direct employees, who occupy the lowest tier of the corporation. Employees earn a salary and might also have access to benefit packages.
Board of Directors' Major Responsibilities
The board of directors has the most responsibilities in a corporation and must make sure that the company consistently succeeds. First and foremost, directors maintain organizational continuity. Directors set up the corporation and then advocate for the corporation's best interests.
Directors are also responsible for choosing a chief executive who will be responsible for running the corporation on a day-to-day basis. Once appointed, the executive will report to the board of directors, who will review the executive's performance. The board of directors will decide whether the executive is fulfilling their responsibilities and can suggest replacing the executive if they are not performing to the board's standard.
Governing the organization is another responsibility of the board of directors. Directors can set objectives for the company and set policies that will be implemented by the chief executive and followed by company employees. A corporation's board of directors must also make sure that the company has the resources that it needs to succeed. Directors can obtain financing for the company and may purchase, lease, or sell real estate as needed.
The board of directors must inform shareholders of the company's financial status. Directors will tell shareholders about the products or services the company is offering, how much these items are costing the company, and how much each good and service is earning. Regularly reporting to shareholders helps keep the company accountable for its actions, particularly those related to the corporation's budget.
Responsibilities of the Corporation
A corporation has several responsibilities that it must fulfill. Since corporations are considered legal persons, they can get sued if they do not fulfill their responsibilities. Issuing stocks to shareholders forms a corporation, and every corporation needs a board of directors that will govern the company's operations. Corporations are also required to pay taxes for both employee and company earnings. In addition to these responsibilities, corporations have several other responsibilities:
- Appointing a CEO: A corporation's board of directors must appoint a chief executive officer (CEO) who will manage employees and daily company operations.
- Maintaining Continuity: Continuity of business is another corporate responsibility. Basically, this means that a corporation should continue doing business through different circumstances, including firings, departures of important figures, and deaths.
- Resource Management: Both small and large corporations must effectively manage resources, which can include materials needed to create a product and the company's money.
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