The Responsibilities of the Board of a C Corp.

By Laura Payet

The Responsibilities of the Board of a C Corp.

By Laura Payet

A corporation is a business entity with a legal existence separate from its owners. It can act in its own name and pays taxes on its income. The corporate structure is popular because it protects its owners, known as shareholders, from personal liability for the company's debts and obligations.

People sitting around a conference table

A C corporation is the most common type of corporate entity. Its board of directors bear responsibility for big-picture corporate oversight, including setting the corporate mission and strategy. These responsibilities come from the company's bylaws and state law.

Creating a Board of Directors

State laws establish the framework for forming a C corp. and creating its board of directors. All states require a public corporation to have a board, but requirements for how many directors they must have and how the company chooses them vary by state. Once the corporation exists, its bylaws govern the selection of board members and size of the board.

Generally, shareholders elect the directors but the bylaws establish election procedure and may set qualifications for board members. The bylaws also specify each member's duties. In general, the board does not manage the business's daily operations but rather sets corporate goals, manages corporate resources, and makes major decisions such as whether to issue new shares or to merge with another company.

The Board's Duties

Board members owe a duty of care and loyalty to the company and the shareholders. This means that they have an obligation to act in the corporation's best interest. A board member cannot use their position to enrich themselves to the company's detriment, nor can they capitalize on business opportunities from which the business could benefit. Board members must always exercise their best judgment on the corporation's behalf.

The corporate bylaws specify the particular duties of each board member and the board as a whole. These duties typically include:

  • Hiring and firing corporate management
  • Holding regular meetings and taking minutes
  • Deciding whether to issue dividends
  • Amending the bylaws
  • Holding an annual shareholder meeting
  • Approving the corporate budget
  • Reviewing financial statements and overseeing audits

Typically, a board of directors includes at least a chairperson, vice-chair, secretary, and treasurer, but some larger corporations have as many as 30 board members. Corporate bylaws usually give directors the authority to establish committees for handling particular issues or tasks.

Director Liability

Corporate directors typically have protection against liability for actions they take in the course of their duties. This protection comes from a legal doctrine known as the business judgment rule, which shields a director as long as they act in good faith, with the care that a reasonable person would take and with a reasonable belief that their actions were in the corporation's best interest. However, the business judgment rule does not protect a director who violates federal securities laws requiring truthful disclosure of corporate information. Corporate directors can also face criminal liability for personal illegal activity, even if done on the corporation's behalf.

If you are ready to incorporate your business, understand your responsibilities and requirements for incorporation. Follow your state's rules and regulations in terms of formation, and choose a group of board members who will properly assist in overseeing your business.

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.