Corporation vs. Officer vs. Owner

By Christine Funk, J.D.

Corporation vs. Officer vs. Owner

By Christine Funk, J.D.

A corporation is a form of business. The officers of the corporation manage and operate the business while the owners of a corporation, known as shareholders, have an equity interest in the business. Each of these three is different and distinct, and understanding them is critical to understanding the operation of the business.

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Corporation Basics

A corporation is a form of business that has a legal existence separate from its owners. Forming a corporation requires filing articles of incorporation with the appropriate legal entity, often the Secretary of State. State law determines the essential requirements for the articles of incorporation, but, typically, the articles require the name of the corporation, the name and address of the registered agent, and the type and number of shares of stock the corporation will issue.

A corporation provides liability protection for its owners. Specifically, obligations of the business are solely the obligation of the corporate entity, not its owners. In exchange, the corporation's income is treated differently than the income of other business entities, such as a sole proprietorship.

Officers of a Corporation

The officers of a corporation are responsible for its management and day to day operation. Further, officers are employees of the corporation and typically receive a salary in exchange for their efforts. Officers include the president or chief executive officer, the chief financial officer or treasurer, and the chief operating officer.

Responsibilities of the officers vary, depending on their role in the corporation. Officers of the corporation may also be owners of the corporation. This is particularly common in small corporations.

Owners of a Corporation

The owners of a corporation are known as shareholders. Shareholders provide the capital necessary to operate the business in exchange for shares of stock. Some owners may receive shares even if they do not provide capital. For example, by agreement, owners may receive shares in the corporation in exchange for services provided to the corporation, sometimes known as sweat equity. Depending on the structure of the corporation, some shareholders have the right to vote on corporate matters.

In a properly maintained and operated corporation, the owner's liability is limited to their investment in the corporation. The corporation is responsible for its liabilities, not the shareholders of the corporation. A corporation also pays its profits to shareholders in the form of dividends. In addition, subject to any corporate restrictions, shares may be sold or otherwise transferred.

Corporate Roles

In addition to the corporation's officers and owners, other roles exist, including the board of directors. The shareholders elect the board of directors, who make decisions for the corporation consistent with the best interests of the shareholders. These high-level decisions include business strategy, selecting the officers, and determining compensation and authority of the officers. A corporation's bylaws define these roles and govern the business.

Corporations operate most effectively and efficiently when each party performs its separate role. Even when a party has multiple roles in a corporation, proper corporate structure must be maintained. This includes not only financial management but corporate management as well.

If you are considering starting a corporation, you should consult with an expert. An online service provider or a qualified attorney can help.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.