The Responsibilities of the Board of a C Corp

By John Cromwell

A "C" Corporation is the standard form of a corporate entity; it is a separate legally taxable organization, which generally protects the shareholders from being personally responsible for the business’s liabilities. The board of directors is elected by the corporation’s shareholders to oversee the business. While the board does not manage the day-to-day operations, it is responsible for establishing the overall strategy for the business. The directors are fiduciaries of the shareholders, which mean that any actions they are authorized to take are subject to certain standards.

A "C" Corporation is the standard form of a corporate entity; it is a separate legally taxable organization, which generally protects the shareholders from being personally responsible for the business’s liabilities. The board of directors is elected by the corporation’s shareholders to oversee the business. While the board does not manage the day-to-day operations, it is responsible for establishing the overall strategy for the business. The directors are fiduciaries of the shareholders, which mean that any actions they are authorized to take are subject to certain standards.

Duty of Loyalty

Board members of a corporation are required to stay loyal to their corporation. This means that a director cannot use her position to receive improper personal benefits from the corporation, steal opportunities from the corporation, or enter into an outside financial relationship with the business. For example, if a director used her position to make her personal business the sole supplier of an asset to the corporation, that would be self-dealing and might violate the director’s duty of loyalty.

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Duty of Care

Corporate directors must exercise discretion when they act. The board must consider all the facts available and truly believe that its decision is in the best interest of the corporation. If the board makes a decision that ultimately results in significant losses, the shareholders might want to sue the board under the argument that it violated its duty of care. The business judgment rule is a device that is used to protect directors from being sued by their corporate shareholders, which in turn defines a board’s duty of care. Under the BJR, if the directors acted in good faith and in the same manner as a reasonable person, they cannot be held liable for any decision they make regardless of the outcome.

Appoint Corporate Officers

Corporate officers are the individuals who are responsible for managing the corporation’s business on a daily basis. The officers are generally the ones who have the legal authority to act on the corporation’s behalf when entering into legal agreements. It is generally the responsibility of the board to choose these representatives and to closely monitor them to ensure that the officers are meeting their fiduciary duties and are promoting business growth.

Corporate Bylaws

The corporate bylaws are the rules of the business and define specific tasks and obligations that the board is supposed to undertake. In addition to appointing officers, corporate boards are often required to oversee annual audits of financial statements provided to the shareholders, consider significant acquisitions, and approve the corporate budget. The board is also generally required to monitor the corporation’s public relations.

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The Right to Sue a Board Director

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How to Name C Corp Officers

A C corporation is an organization legally distinct from its owners, otherwise known as shareholders. This legal separation generally protects the shareholders from being personally liable for the business’s liabilities. Oftentimes it also requires that the business’s day-to-day activities be run by corporate officers. The corporate officers are often the face of the business to its employees, customers and suppliers, so choosing the correct people for the job is important. In addition to finding the right fit, it is important to ensure that you comply with all of the required procedures for appointing officers.

What Liability Does a Corporation Have for Its Officers?

Employees of a corporation, which includes its officers, generally aren’t personally liable when engaging in business transactions or otherwise acting as a representative of the business. Instead, the corporation is solely liable for the acts of its officers. However, exceptions do exist when a corporation’s officers act outside the scope of their duties.

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 information available at the time. Sometimes, an appointed officer does not live up to the expectations of the board of directors and his removal is necessary. Understanding the protocol for removal -- and the strategic roles that company bylaws and shareholder voting play in the process -- can help you determine whether a corporate structure is right for your business. Those who run a small or closely held corporation face additional considerations if shareholders take on a director or officer role or if only a few individuals hold the majority of shares.

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