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.

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.

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.

Ready to incorporate your business? Get Started Now

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.

Ready to incorporate your business? Get Started Now
The Right to Sue a Board Director


Related articles

An S Corporation's Board of Directors' Compensation Vs. a Shareholder Distribution

An S corporation is a "pass through" entity, and is taxed under the IRS code, Subchapter S. The corporation does not pay business income tax, and is taxed instead on the shareholders' personal tax returns. An S Corporation is usually a small corporation with a limited number of shareholders who also might serve as officers and directors for the corporation. For tax purposes, S Corporations must distinguish salaries from shareholder distributions, because the same person may receive both. Salaries are a business expense that must be reasonable in size, and the corporation will withhold taxes on the income. Conversely, shareholder distributions are a reflection of the profit made by the corporation, paid out after all other expenses.

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.

Fiduciary Responsibility of a Presidential Officer for a Nonprofit

The president of a nonprofit, like the president of a for-profit business, is legally required to act with special care towards the nonprofit. The president is a "fiduciary" of the nonprofit: an individual in a special position of trust who must not abuse that position. She functions as an employee and must act with a heightened standard of care known as a "fiduciary duty."

LLCs, Corporations, Patents, Attorney Help Incorporation

Related articles

Does a Nonprofit Board Have to Approve Contracts or Can the Executive Director Do That?

A nonprofit's board of directors is legally responsible for financial oversight of the organization. By adopting bylaws ...

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 ...

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 ...

Can a Nonprofit Board Fire the Executive Director?

A nonprofit's success is often tied to the zeal of its primary representative: the executive director. The ED is ...

Browse by category
Ready to Begin? GET STARTED