S Corp Board of Directors: Everything You Need to Know
An S corp board of directors is a group of people who run the corporation. It's one of the three parts of a corporation's structure, which also includes directors and shareholders.3 min read
An S corp board of directors is a group of people who run the corporation. It's one of the three parts of a corporation's structure, which also includes directors and shareholders. It is sometimes referred to as a board of trustees, executive board, or board of governors.
Individual directors do not have authority to sign contracts or make any major decisions for the company. They must act as members of the board, which functions as a group. The articles of incorporation, as well as the bylaws, identify the board members/directors.
How Directors Are Selected
The person who forms the corporation, called the incorporator, may select them. This person may also be the president/CEO of the company. Later on, shareholders elect directors at annual meetings.
Members of the board of directors should be chosen for their ability to provide guidance and improve the company, not because of politics or friendship. Board members are usually volunteers. Paying them could be considered a conflict of interest, but it is all right to pay them for travel or other expenses involved in attending board meetings. The business can deduct these payments on their business tax forms.
Board Members' Duties
The board of directors' duties are laid out in the company's bylaws and specified in the state laws where the business is formed. These include:
- Taking care of the business' financial and legal needs, including loans and purchases of real estate
- Establishing the business' overall vision and mission and setting policies for employees and officers
- Setting corporate policies
- Approving the decision to issue stock, authorizing dividends, and setting salaries for executive employees
- Making necessary amendments to the bylaws or articles of incorporation of the company
- Always acting in the best interests of the corporation
In some states, the board of directors must meet in person. Most states, however, allow directors to meet over the phone and sign consent resolutions for certain matters instead of attending regular meetings.
Board of Directors Officers
A typical board of directors consists of the following officers:
- Board chairperson
- Vice chair
The exact duties belonging to these individuals are specified in the company's bylaws.
Inside a Typical Board Meeting
A standard format is used for board meetings. The most popular resource for establishing this format is Robert's Rules of Order. The typical agenda is as follows:
- Review and approval of the minutes from the last meeting
- Review and approval of the treasurer's report
- Presentation of committee reports
- Discussion of old business; any voting that takes place is recorded in the meeting minutes
- Discussion of new business; any voting that takes place is recorded in the meeting minutes
The board secretary takes the meeting minutes, following a specific format.
Corporate Annual Meetings
A corporation is required to hold an annual meeting of its shareholders. This is run by the corporate board, and it typically issues an annual report that covers the current state of the corporation. The agenda must be written according to specific requirements which describe what to include.
Annual meetings are used for appointing corporate officers and taking care of any other business that is required. Special meetings may also be held to conduct other business needs that may arise.
All the minutes from the board of directors' meetings must be available at the annual meeting and must be up-to-date, complete, and appropriately detailed. Also, formal resolutions must document all the directors' actions. Outside businesses that are involved with the company often require these resolutions to verify that the transactions have been properly authorized.
In some states, shareholders can participate in the corporations' management process. This could make management easier in many cases, but the need for corporate record keeping still exists.
Requirements for Corporate Boards
Rules for a board of directors may be different depending on the state. All C and S corporations must have a board of directors. The number of directors depends on the business' size and is usually noted in the bylaws and articles of incorporation.
No matter what state the business is formed in, all corporations must have a board of directors that is elected by shareholders. It must hold an annual meeting every year and keep minutes of each meeting documenting everything that was discussed and any actions taken by the board.
LLCs and sole proprietorships do not need to have a board of directors but may have one if they desire.
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