In a corporation, there are shareholders, directors, and officers. The shareholders are the owners of the corporation. Shareholders are able to vote on certain enumerated areas including electing directors, amending governing documents, merger agreements, sale of substantially all assets, and dissolution. A shareholder is able to sell his or her stock and is able to sue the corporation if they are unhappy with the directors (typically suing for breach of fiduciary duties).
The directors serve as managers but are not as involved as the officers which control day-to day activities. The directors have statutory power to manage the corporation.
Inside directors tend to be both directors and officers (possible CEO, CFO, etc). Outside directors are not involved, often work somewhere else and just help run the corporation. Independent directors have no financial connection to the corporation other than being board members. There are yearly elections for directors. Certain default rules for directors and the operations of the corporation can be changed by amending the charter. For example, the quorum required to make business decisions by default is the majority of directors. By changing the charter, this number can be increased or decreased. For board that have fewer directors, it would be very important to think critically about the quorum requirement.
Below is a list of additional statutory default characteristics that are often changed by the directors when writing the charter and bylaws. These default characteristics can have a major impact on the corporation if they are not changed:
The above list indicated many crucial areas where it is important to carefully plan, meet with an attorney, and alter the default rules. However, there are some default rules that cannot be changed. For example, the safe harbor clause of the Virginia Corporations Act states that the board of directors are protected in decisions they make based on a reliance in good faith on information about the corporation received from qualified sources. This is not something that can be changed or altered. Additionally, a corporation must have at least one officer with duties listed in the bylaws and is required to at least have a secretary (to keep records of meetings). As you can see, it is very important to know the statutory requirements of a corporation and how they might impact your business. Further, it is important to remember that you can tailor your corporation’s articles and bylaws to have the laws work for your company in the best way possible.Next: Fiduciary Duties of Directors
© 2016 John V. Robinson, P.C.