Whether you incorporate or form an LLC for your business, you will have an organized management structure that are accompanied by some formalities. Corporations are more formal in nature and LLC’s offer more flexibility. Incorporating your business as a single owner organization means that you will still have to fill each seat in the organizational structure of your incorporated business.
Corporate Management Structure
When you incorporate, or form a Corporation, you will have a formal three-tier structure of the organization’s management. Shareholders own the business, the Board of Directors selects officers and makes high level decisions, while Officers run the day to day activities of the business. Incorporating your business as a Corporation can be performed with a single person in most states, however you should look into your state’s rules for incorporation. In some cases when there is more than one shareholder, there must be more than one director.
Corporate Shareholders are who owns Corporations. Anyone who owns a share of stock in a Corporation is a Corporate Shareholder. Any regular C Corporation can have an unlimited amount of shareholders. Closely held and Sub Chapter S Corporations have different restrictions on this and are governed by federal mandate. Depending on the amount of interest held by a Shareholder, there could be a varying degree of interest in the decisions of the business, some shareholders play a more active role in overseeing who is elected to manage the business. A shareholder doesn’t run the business or manage it in any way. Shareholders elect who will run the business and vote on major business issues. Directors.
Shareholders can have a significant impact on the business by electing Directors that have a shared vision for the direction of the business as well as voting to remove Directors that aren’t in line with the Shareholder’s direction. Shareholders have the explicit right to approval for big picture business items, such as acquisition, merger, dissolution and the sale of assets.
The Board of Directors has a closer involvement in the management of the business. Directors are voted in by Shareholders and hold an annual meeting once they are voted in. Directors carry out the vision of the Corporation by electing the Corporate Officers, setting operation policies, expanding the business and authorizing financial decisions. The Board of Directors doesn’t have a minimum or maximum size, this will depend on the size of your business.
Directors must act on behalf of the business’ best interests and in any event that is compromised, state law could hold the individual personally liable for a decision. Directors must act with honest intentions and loyalty to the Corporation, putting their personal interests second. Directors ensure that set policies are carried out and oversee the activities of the business.
Officers are elected by the Board of Directors. Each office has a specific function and duty. Corporations have 4 typical officer seats, President, Vice President, Treasurer and Secretary. Officers carry out the day to day activities of the business. Some titles are synonymous with the typical seats, such as CEO (Chief Executive Officer) and CFO (Chief Financial Officer) and are common corporate jargon.
Officers are hands-on with the day to day activities of the business, overseeing employees and the operations of the Corporation. In small Corporations, officer positions are typically filled by the shareholders and only the traditional offices are filled.
- President: Carries the majority of the responsibility of the enforcement of corporate policy. Signs major contracts and legal documents on behalf of the business. Answers to the Board of Directors.
- Vice President: Although a vice president is typically the successor of the President office in the event of death or dismissal, the Vice President is a senior executive of the business. Directors will elect officers and Bylaws may have provisions for availability events in an officer position.
- Secretary: Maintains corporate records and books.
- Treasurer: Manages the financial records, accounting operations and transactions.
Limited Liability Company Management Structure
LLC’s are managed by the owners, or members of the company. Another method is to designate specific members to be the managers of the business. By default state LLC law provides that the company will be run by all members. Your operating agreement can provide your own management model with designated individuals who are tasked with operating the business.
Members of an LLC are the owners. Anyone who holds LLC interest in the company is a member. By default LLC law, company decisions should be carried out with consent of all the members. Members will managed the LLC in this case and it is referred to as “Member Managed”.
Any LLC can appoint a member or externally contracted individual to manage the company affairs. This provides for close control of the business and availability to have other members play a more passive role in the organization. This management is awkwardly called “Manager Managed”.