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.
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.
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.
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:
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.
The board of directors reports to the shareholders. The board’s tasks include:
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, known as “upper-level management,” are chosen by the board and handle strategic tasks and company operations. The four categories of officers include:
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 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:
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 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.
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.
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.
The roles in a corporate structure typically include the board of directors, corporate officers, shareholders, and employees.
An example of a corporate structure is a C-corporation that has 1,000 shareholders, a CEO, a CFO, and a corporate secretary, as well as three main departments: Operations, Finance, and Marketing.
There are four kinds of organizational structures. They are:
The three basic corporate structures are the board of directors, the corporate officers, and the shareholders. Employees are not always considered part of the corporate structure.
Corporate structure is important because it permits a business to outline the roles and responsibilities of each part of the company.
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