The Basics of Corporate Structure

When you form a corporation, one of the first things you’ll need to consider is the kind of corporate structure your new company will have. While the structure of a corporation can vary slightly from enterprise to enterprise, a corporate structure typically has shareholders owning the company, a board of directors and corporate officers managing the business, and employees carrying out the day-to-day functions of the company.

What is corporate structure?

Corporate structure is also known as corporate governance. The organizational structure of a corporation permits a new business to outline positions and responsibilities. This can also attract investors who can rely on corporate governance and corporate structure to easily understand how the company plans to make money.

Business Entities that Use Corporate Structure

Nearly all businesses use some form of corporate structure. Even if your company is not planning to follow a rigid corporate structure chart, corporate structure still comes into play. Even the smallest businesses can benefit from having corporate governance in place. And you don’t need to be a corporation to have corporate governance. Limited liability companies (LLCs), partnerships, and other types of businesses all need some kind of governance in place. Running your business consistent with corporate structure isn’t about anything inherent to being a corporation — from a practical point of view, corporate governance will allow your business to operate in a smooth and efficient manner.

The typical structure of a corporation separates owners, directors, officers, and employees. Clear, consistent structure can help you grow a small business into an international company that’s traded around the world.

Roles in a Corporation

To understand the structure of a corporation, it’s important to understand each of the different roles in corporate governance. The four main roles involved in corporate structure include:

• Shareholders: The shareholders are also known as stockholders and are considered the owners of the business.
• Directors: Directors form the corporation’s board and guide the company’s strategic affairs. The directors are most often elected by the shareholders.
• Officers: Officers are usually hired by the directors and handle the company’s most important tasks.
• Employees: These are the folks who run the day-to-day operations of the business.

The same person can serve in more than one capacity, but only if the state’s laws permit it. For example, if allowed in your state and by the corporation’s structure and bylaws, you could be a shareholder, the corporate secretary, and a member of the board of directors. To help make it more straightforward, we’ll also walk you through what some of these corporate roles do and how they fit into the structure of a corporation.

Board of Directors

The board of directors reports to the shareholders. The board’s tasks include:

• Keeping the chief executive officer (CEO) aligned with the company’s goals
• Reviewing the company’s plans, budgets, and vision
• Confirming that the business is operating in accordance with applicable law
• Writing bylaws
• Protecting shareholders
• Holding annual meetings as required by law and company bylaws

The size of a board of directors typically depends on state law and company bylaws. Shareholders elect board members. Basic corporate structure usually requires an odd number of board members to avoid tied votes.

Corporate Officers

Corporate officers, known as “upper-level management,” are chosen by the board and handle strategic tasks and company operations. The four categories of officers include:

• President or CEO: This officer can sometimes serve in both roles and enforces policy, typically has ultimate management decision-making power, works with the board of directors on the company’s budget and goals, and signs regulatory filings.
• Vice President or Chief Operations Officer (COO): This officer is a senior executive and stands in for the president if they can no longer act as president. The VP runs daily company business and oversees large parts of the structure of the corporation.
• Treasurer or Chief Financial Officer (CFO): The CFO writes budgets and tracks receivables and spending. Most CFOs give reports to the board and prepare filings for the Securities and Exchange Commission (SEC) and other agencies.
• Secretary: The company secretary keeps records, files regulatory filings, and keeps minutes at board meetings.

While different companies may have slightly different corporate structures, this is the general corporate structure chart most companies follow. If you determine that a corporation business entity type is not right for your enterprise and an LLC is better, you may not need as many corporate officers to efficiently run your business. A CEO and CFO may suffice.

Shareholders

Shareholders are the owners of the company. In most companies, shareholders are not involved in the daily operation of the business. Different kinds of corporations have different numbers of shareholders. S corporations have fewer than 100. C corporations can have thousands or more. If you’re using a different business entity type but still trying to establish a corporate structure, you may have something called “members” instead.

Shareholders are not personally liable for the company and get a return on their investment in the form of profits or dividends.

Shareholders can vote on major company decisions including:

• Members of the board of directors
• Changing bylaws or the Articles of Incorporation
• Dissolving the company, merging the company, or acquiring a company
• Disposing of material assets

Shareholders are a fundamental part of the corporate structure. While you may think of corporate structure as being something that has to do with the roles employees and managers play, it also has to do with how the company is governed and owned, and shareholders form the foundation of that structure.

Employees

Employees perform the day-to-day tasks of keeping the company running. They take direction from corporate executives like the CEO and CFO, as well as carry out the board’s vision for the company under the CEO’s leadership.

Creating Bylaws for a Corp

Bylaws are your rules for how you’ll manage your organization. Bylaws typically specify the minimum number of board members required, how many board meetings are required each year, and information about how officers can be appointed. Bylaws must also comply with any state or industry minimum requirements, such as the number of directors and the frequency of board meetings. If you don’t have bylaws or are silent on an issue, your corporation will follow your state’s minimum requirements.

How ZenBusiness Can Help

When you’re ready to get going on your big business idea, our incorporation service is an excellent resource to get you up and running quickly for $0 to start. And if you’re not sure whether an LLC or corporation is right for your next venture, take our business formation quiz to help guide you in figuring it out. Once you’ve set up your business entity, our full suite of business services and tools support you while you get started and help your business grow and thrive. Let us take care of formation, registered agent, document amendments, compliance, and more so you can focus on the business you love.

Disclaimer: The content on this page is for informational purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.