The importance of the various roles in a corporation, and the distinctions between those roles, become more obvious as the corporation grows in size and complexity. The difference between a Shareholder and a Director matters little when one person is the single Officer, Director, and Shareholder of a company.
If a company requires the talents of more than one person in a leadership position, or the funding of more than one owner, then the distinctions between Officers, Directors, and Shareholders become very important to managing the relationships among the company and with its owners. The services offered by Sopow Law and Consulting are specifically aimed at navigating this challenge.
With the above in mind, and knowing that one person can hold multiple roles, the roles of interest are:
Officers manage the day-to-day activities of the corporation, and include the “C-suite” positions. They are expected to have detailed knowledge of what is happening in the company, and are responsible for any failures to achieve the strategic objectives of the company.
Directors set the strategic objectives of the company, and are expected to have knowledge of the information that is most critical to those objectives. Typically, Directors get their information from Officers via reports to the Board of Directors. Directors also select who those Officers are, and set the job descriptions for those Officer positions.
Shareholders select the Directors through voting, and in simpler structures one vote will be given per share owned in the company. Shareholders are also normally entitled to high-level information about how the company is performing, and are able to receive payments from the company’s profits in the form of dividends.
Communicating what decisions were made, and keeping a permanent record of those decisions, is critical to running a company. A Board of Directors relies on the Officers of a company to keep it informed, since the Directors do not deal with the daily management of the corporation. Establishing what information needs to be communicated, when, and in what format is therefore critical for the Board of Directors to make informed decisions about the direction of the company.
Also important is keeping track of what decisions were reached by the Board itself, through Minutes. Minutes are the records of meetings of the Board of Directors. At minimum, they should state who attended a meeting, what decisions were reached, and the information relied on to make those decisions. Being able to show why a decision was made in the past, and the people involved, can be critical when disputes arise. It is also generally useful to have an organized record of how the corporation’s strategies have evolved over time.