Division of power: the roles and powers of officers, shareholders and the board of directors in a corporation
Many of us work for corporations and unless we live under a rock we know that corporations have officers, shareholders and directors. But do we really understand the role and powers that each one of them play? Probably not. The truth is that the role can be different in each corporation, but there some general rules in the powers of the actors. To gain a greater understanding of the role of the actors within a corporation, here is a quick guide.
Shareholders are the owners of the stock in the corporation, meaning they literally are the owners. The shares of stock they buy represent the part ownership in the corporation.
Their first, and most important power, is that they elect the members of the board of directors. This gives them direct influence over how the corporation is run. Second, they have the power to approve or disapprove of major changes to the corporation. This includes actions like mergers, acquisitions and the selling of substantially all of the corporation’s assets. Also, shareholders often have the power to amend the articles of incorporation or the bylaws and they can sometimes void certain transactions of the corporation.
In short, shareholders own the company, and as a collective unit, they have great power and influence over it.
The board of directors
The board of directors manages a corporation at the policy level.
A key aspect of the director’s powers are their ability to appoint the officers of the corporation, who handle the day to day operations. The board also sets major policy, for instance any non-trivial acquisitions of another company’s stock would have to director approved.
The directors also have great influence over the corporation, but mainly at a higher policy level.
Officers are the front line managers and they handle the day to day operations of the corporation.
The officers have tremendous influence over the corporation and they make many of the nuts and bolts decisions, such as signing contracts and buying assets for the corporation. They essentially act as agents of the board of directors and derive their power from there.
We encounter corporations daily, but we rarely realize how their inner structure works. We know now that shareholders, directors and officers make up the management of an organization and all contribute to its success. To learn more about the inner workings of a corporation contact your local business attorney.