Who Has the Most Control Over a Corporation?
Are you wondering who has the most control over a corporation? The answer is that the person holding a majority of voting power has the most control.3 min read
Are you wondering who has the most control over a corporation? The answer is that the person holding or controlling a majority of voting power has the most control. This control is subject to the minority rights in certain areas granted under state laws.
With thousands of corporations registered each year in the U.S. alone, corporation is a popular business structure. Most of the largest businesses operate as corporations. It offers a number of advantages over sole ownerships and partnership firms.
The major reason for incorporating a business is to steer away from the risk of personal liability. Unlike partners and sole owners, shareholders of a corporation are not personally liable for business loans and liabilities; their risk is limited only to the extent of their investment in the corporation. Forming a corporation offers an inexpensive shield in today's business environment where people are always looking for reasons to sue.
Definition and History of a Corporation
A corporation is a distinct business entity separate from its owners. It's registered with the state authority (usually the secretary of state) and is governed by a state-level corporate law. As a distinct legal entity, a corporation has its own rights and obligations. It can conduct business in its own name and is also liable to pay its taxes.
You can refer to a corporation as a "person" but not as a "natural person." The term “natural person” used in some laws refers to human beings only.
Corporations have a long history. Several hundred years ago, they were invented to promote world voyages and other risky ventures. Earlier on, when corporations were not there, promoters faced the risk of unlimited liability on the failure of a venture.
As corporations were introduced into the business world, people could collectively invest huge amounts of money in a new venture. They shared the profits on its success, and if it failed, they would only lose their initial investment.
Over its long period of evolution, it has developed a backing of strong law and machinery to ensure smooth functioning and take care of any malpractices like insider trading and struggle for power between shareholders.
How a Corporation Functions
- The basic structure of a corporation includes shareholders who elect a team of directors (called the board of directors or simply the board) to manage the business.
- The directors appoint managers and officers to run the day-to-day affairs of the corporation.
- Most of the corporations have a president or CEO, a treasurer or CFO, and a secretary among their officers.
- Usually, a shareholders' meeting is held every year. The major businesses transacted in such a meeting include electing of directors and approving of financial accounts and other actions of the board.
- The board of directors conducts its meeting annually or quarterly, wherein it reviews the actions of the officers.
- The officers of the corporation meet as often as they consider necessary for smooth functioning of the business.
The directors and officers of a corporation are bound by the fiduciary duty, meaning that they are legally required to act in the best interest of the company and its shareholders. Any negligence or breach in the performance of this duty can make them personally liable for the loss or damage.
It's not just enough to act in good faith; they must exercise due care and caution to protect the company in every transaction they enter into. For example, if they fail to make proper inquiry or investigation, then they can be held personally liable even if they conducted a certain deal in all genuineness. However, a genuine error in judgment, without any negligence, may not create personal liability.
Who Controls a Corporation the Most?
One who holds or controls the majority of voting power controls a corporation. If you hold 51 percent of the voting power, you can elect most of the directors. Although voting power is usually equivalent to the number of shares you own, it may not be the same case if a corporation issues shares with disproportionate voting rights.
A majority shareholder can run the company almost as he or she wishes. However, minority shareholders too have certain protective rights under the law. Most of the states grant the following two important rights to minority shareholders:
- The right to receive the same price per share that the majority shareholder receives when the company is being sold.
- The right to receive the same amount of dividend per share as the majority shareholder.
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