Corporate Control

 

By Albert Kelley

 

 

There are three levels of control in any corporation: Shareholders, Directors and Officers. Surprisingly, the owners of a corporation actually have little to do with the day-to-day control of the business; they get to vote on major issues such as mergers and acquisitions, or whether or not to sell off the assets of the business. But their strongest control is the election of directors. Shareholders must meet once a year to discuss the status of the corporation and to elect directors for the next year. Often, these meetings are a mere formality. There must be a quorum present either in person or by proxy. The law also allows shareholders to attend in person, by telephone or computer, so long as they can hear and participate in the meeting.

 

 

 

The Directors are elected to manage the company for the benefit of the shareholders. They do not have to be shareholders themselves, although they usually are. The directors are the long range planners of the company. The directors have a fiduciary relationship with the company, meaning they must act with the best benefit of the company in mind. They cannot take actions to benefit themselves that would hurt the company. They also cannot take advantage of opportunities that should go to the company. If the directors have acted in good faith with adequate information and with the belief that their action was in the best interest of the company, the courts will generally not interfere with their decisions. This is known as the Business Judgment Rule. If, however, the decision was made improperly, the Court can overturn the directors’ decisions. Like shareholders, the directors are required to meet once a year to ratify the prior actions and to elect the Officers of the company.

 

 

 

The Officers run the day-to-day business of the corporation. There are no statutory requirements as to how many officers a company must have or what their titles must be. As a general rule, a company usually has at least a President, Vice-President, Secretary and Treasurer. In addition, there may be a Chief Executive Officer (CEO) or Chief Financial Officer (CFO). I have heard of companies who used more unusual titles for their officers, such as “Captain” or even “Top Dog.”

 

 

 

The role of the officers differs from corporation to corporation, but some issues generally remain the same. The President is in charge of the administrative functions of the company. He can hire and fire employees and he must make sure that the wishes of the Board of Directors are carried out. Often the President does not have the authority to take long-term actions. As a general rule, though not often followed, the President does not have the authority to enter into long-range contracts and he cannot settle claims against the company. He also cannot sell off the assets of the company. These actions belong to the Board of Directors. However, in order to streamline operations, the Board will often appoint a Chief Executive Officer, who has the authority to take these larger actions on the Boards behalf.

 

 

 

The job of Vice-President varies by company. In some it is merely a back-up position; in others it is a divisional management position. The Secretary is the officer responsible for the paperwork of the corporation. It is the Secretary’s job to ensure all corporate records are maintained and to send out notices, minutes and agenda for meetings. The Secretary is often considered the company records custodian and therefore may be called to testify in litigation matters. The Treasurer of the company is responsible for the financial records of the company. Even if the company hires accountants to keep the books and gives the President the authority to sign checks, the Treasurer must still be familiar with the company’s financial status as they can be called to testify if there are any questions about the company’s finances.

 

 

 

Like directors, officers have a fiduciary relationship to the corporation. While officers and directors are not personally responsible for the debts and liabilities of the company, they may be held liable for their actions in the corporation, if they act improperly or against their by-laws. If their decisions are considered criminal, the officers and directors authorizing those decisions may be tried, and if found guilty may be ordered to pay fines or even be jailed.

 

 

 

Al Kelley is a Florida business law attorney located in Key West and previously taught business law, personnel law and labor law at St. Leo University. He is also the author of “Basics of . . . Business Law”. This article is being offered as a public service and is not intended to provide specific legal advice. If you have any questions about legal issues, you should confer with a licensed Florida attorney.

 

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