How a Corporation Is Set Up

The Corporation is rigid in how it is structured and run.  This is due to laws, rules, and general practices that have existed and worked well for years.

The great thing about a corporate structure is that it scales very well.  From the smallest of companies to the largest enterprises – there is a common truth to how Corporations are set up and run.

A Corporation is typically very rigid in the way that it is structured: 

  1. Shareholders own the corporation (but do nothing else);
  2. Shareholders elect Directors to a Board of Directors;
  3. Board of Directors is responsible for the Corporation and what it does (the Directors owe a fiduciary duty to the Shareholders to run the Corporation well)
  4. The Board then hires Officers (CEO, COO, CTO, etc.) and delegates its authority to them.
  5. Officers run the Corporation on a day-to-day basis and report to the Board;
  6. Officers then hire employees as subordinates, to help run things when needed.

A Corporation’s governance is equally as rigid:

  1. Employees make department-level decisions and propose larger changes to the Officers;
  2. Officers make day-to-day company-level decisions and propose larger, long-term ideas to the Board;
  3. Board of Directors make the big decisions about the Corporation’s business, but propose structural changes to the Shareholders (voting rights, new stock issuances mergers & acquisitions etc.);
  4. Shareholders only vote on matters presented to them by the Board.

If you are interested in more detail related to your situation it is best to speak with an attorney.

Andrei Tsygankov is the Co-Founder and COO of SmartUp® and a partner at Founders Legal (Bekiares Eliezer LLP). As an attorney, Andrei specializes in corporate, commercial, trademark, and international business matters.

andrei

Source: Smartup Legal