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.

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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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