Does a Corporation Really Need a Board of Directors?

By Dennis Masino

A corporation's structure is more complex than a sole proprietorship or partnership, but it offers protection to its owners from personal liability for business debts and obligations. The three groups that make up the structure of a corporation are the shareholders, directors and officers. Under certain circumstances, the directors' role can be eliminated and taken over by the shareholders.

A corporation's structure is more complex than a sole proprietorship or partnership, but it offers protection to its owners from personal liability for business debts and obligations. The three groups that make up the structure of a corporation are the shareholders, directors and officers. Under certain circumstances, the directors' role can be eliminated and taken over by the shareholders.

Formation

Laws in each state authorize the formation of corporations. Once formed, a corporation is a legal entity with the ability to sue and be sued in its own name apart from the shareholders. Formation of a corporation is accomplished by selecting a name and filing a certification of incorporation with the state. Forms to help you do this are available through an online legal document provider.

Ready to incorporate your business? Get Started Now

Structure

The shareholders are the owners whose investment of money in the corporation entitles them to receive dividends when the business earns a profit. Shareholders do not manage or take part in the operation of the business. That role is left to the board of directors and the officers.The board of directors sets corporate policy and direction, but it does not handle the day-to-day operations of the business. Daily operations of the corporation are handled by the officers who are appointed by the board of directors. Common titles held by officers are president, vice president, treasurer and secretary.

Board of Directors

The directors of a corporation are elected by the shareholders. It is not unusual, and not prohibited by state laws, for a small corporation to have one or more shareholders who are also officers and directors. Directors of a corporation act in a fiduciary capacity in that they must act in the best interests of the shareholders and the corporation above all others, including themselves.

Eliminating the Board

Some state corporation laws allow a corporation to operate without a board of directors. For that to occur, all the shareholders must agree, in writing, to assume the duties of the board of directors in managing the affairs of the corporation. Eliminating the board of directors works best if there is only a small number of shareholders. Having too many shareholders makes it difficult for the owners to manage the business.

Ready to incorporate your business? Get Started Now
How to Setup Directors in an S Corp in California

References

Related articles

Liability of the Directors of a Nonprofit Corporation

When a nonprofit corporation loses a lawsuit or otherwise owes money, the general rule is that individual members of the board of directors are not personally responsible. However, there are several exceptions to this rule. It is essential that the directors understand their roles and responsibilities before accepting a position on the board. In addition, many nonprofits, particularly larger organizations with more exposure to possible liability, purchase directors and officers liability insurance to further protect the board.

Kansas Incorporation Information

State law governs the formation of businesses in the United States; there is no federal law regulating general business forms. Kansas has an organized process for creating and maintaining for-profit, non-profit and professional corporations. Like other states, it also allows foreign corporations to register in Kansas so they may lawfully conduct business in the state.

The Process for the Registration of a Corporation

The corporation is a business vehicle that offers investors limited liability for corporate debts and makes it easier for a company to raise money from investors. In exchange for these advantages, the corporation must register with the state government that forms it, and must comply with state law restrictions on corporate government and operations. Although state laws differ concerning the precise details of the registration process, the corporate formation laws of every state share many features in common. You can form a corporation on your own or through an online legal service provider.

LLCs, Corporations, Patents, Attorney Help

Related articles

What Is the Difference in the Board of Directors and the Stockholders of a Corporation?

A corporation with many owners functions similarly to the American government in that it would be almost impossible for ...

The Responsibilities of the Board of a C Corp

A "C" Corporation is the standard form of a corporate entity; it is a separate legally taxable organization, ...

How to Remove an Officer of a Corporation

The individuals charged with making important strategic and financial decisions for a corporation must act based on the ...

Differences Between Sole Proprietorship, Partnership, & Corporation

Business owners have several options from which to choose when selecting a structure for their business. A sole ...

Browse by category
Ready to Begin? GET STARTED