Traditional Corporate Structure

Corporations usually include shareholders, directors and management.

A corporation is a legal entity that provides significant insulation from liability for its owners. Corporate governance generally rests on the tripod structure of shareholders, directors and management. However, corporate shareholders generally have the power to vote to change any aspect of the corporation's structure structure. Those with specific corporate structure questions should consult a corporate attorney.

Corporate Characteristics

In many types of business, such as partnerships, the business and its owners are one and the same. However, a corporation is its own legal entity, separate and distinct from its shareholders. The corporation may have a theoretically perpetual existence, despite the death or departure of all members who originally founded the corporation. It is an entity with or without the people who own it. Thus, the questions of the rights of a corporation (Should the law treat it like a person? Should it be protected by all the rights that protect individuals?) is a continuous topic of legal debate in the corporate law field.

Shareholders

The first members of the corporation are its shareholders, who invest in the corporation and receive a portion of ownership in return. However, in the typical publicly traded corporation, most of the shareholders do not directly involve themselves in the ordinarily operations of the corporation. Instead, they elect corporate directors to oversee their best interests. Shareholders typically hold annual meetings at which they can elect and remove directors, and amend the articles of incorporation or corporate bylaws, if necessary. Should the corporation face some business-changing decision, such as a corporate takeover or merger, shareholders may also hold a special meeting to vote on that decision.

Directors

A corporation typically has a board of directors, charged with numerous responsibilities. Directors theoretically supervise the corporation's management to ensure that management acts in the shareholders' best interests. Most boards hold periodic meetings (often several times a year) to discuss significant corporate decisions, replace or reward management, and decide whether to declare dividends to shareholders. Boards often split off into individual committees to give more detailed attention to certain issues; typical committees include executive, accounting and legal.

Management

"Corporate management" refers to actual employees of the corporation, who usually make the decisions regarding the corporation's ordinary course of business. Corporate executives, like the board of directors, are supposed to act in the best interests of the company (meaning, the shareholders). In the typical corporation, many of the managers will also receive a significant number of shares as part of their compensation, making them shareholders as well.

Effects of Incorporation

Corporations enjoy limited liability; barring certain types of unethical or illegal behavior, the corporation's owners generally will not be personally liable for the debts and obligations of the corporation. However, most corporations' owners face double taxation. The corporation itself is taxed as an entity, and then the shareholders must pay individual taxes on any dividends they receive from the corporation.

References

• "Corporations, Other Limited Liability Entities and Partnerships"; Thomas Lee Hazen and Jerry W. Markham; 2008
• "Corporate Governance: Law Theory and Policy"; Thomas W. Joo; 2004
• Free Management Library: Overview of Roles and Responsibilities of Corporate Board of Directors
• Business Dictionary: Corporate Governance

Resources

• Chartered Quality Institute: Corporate Governance