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The Structure of a Corporation

The Structure of a Corporation

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Published by: travelerpat on Feb 25, 2009
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The Structure of a CorporationThe Board of Directors 
is elected by the shareholders of a company. It is composed usuallyof both
inside directors - senior officers of the company, and
outside directors - individuals who do not work for the company but who can offer itexpert advice.The board is responsible for protecting investors' interests, such as the company's profitabilityand stability. The board establishes corporate management policies and decides on "big picture"corporate issues. It usually meets several times a year to set long-term goals, review financialresults, evaluate the performance of high-level managers, and vote on important strategicmoves proposed by the CEO. Directors appoint--and can fire--upper-level managers such asthe CEO and president.The
Chairman
of a company is the head of its board of directors, and has a key leadershiprole. The chairman presides at Board meetings and at Executive Sessions (meetings that do notinclude members of management). He or she is responsible for making sure that directorsreceive all the information they need to understand the company make decisions. He shouldensure that all directors participate, that their expertise is listened to, and that directorsunderstand investor concerns. But he or she does not play an active role in everydaymanagement – that is the role of the CEO.U.S. boards typically combine the roles of chairman and chief executive officer: a majority of companies among the Standard & Poor's 1500 composite index do so. However, there is agrowing call for the two roles to be separated. In other English-speaking countries, and inContinental Europe, the jobs of CEO and chairman are almost always separated.
Corporate Officers
 are the individuals appointed (hired) by the directors of a corporation whoare responsible for carrying out the board's policies and for making day-to-day decisions.Senior officers can also hold the position of inside director. Typically, the authority andresponsibilities of each officer are described in the corporate bylaws and may be further definedby an employment contract or job description.The
CEO
(Chief Executive Officer) is a company's top decision-maker, and all other executivesanswer to him or her. The CEO typically delegates many of the tactical responsibilities to othermanagers, focusing instead on strategic issues, such as which markets to enter, how to take onthe competition, and which companies to form partnerships with. So, the CEO must be aleader and a visionary, looking to the future for new opportunities. He or she is often the faceof the company to the outside world. The CEO is ultimately accountable to the board of directors for the company's performance. The CEO can affect the composition of the board of directors through his or her selection of senior executives, many of whom are guaranteedboard seats by company bylaws. He or she also assists in the selection and evaluation of boardmembers. The CEO often (but not always) fills the role of chairman of the board.
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Presidents
often hold the position of 
Chief Operating Officer (COO).
The President/COOhas the overall executive responsibility for the management of the corporation and isresponsible for day-to-day operations. He/she is directly responsible for carrying out theorders of the board of directors. The President/COO usually has vice-presidents for differentparts of the company reporting to him or her.In a corporation with many different businesses (a conglomerate), there may be one CEO whooversees a number of presidents, each running a different business of the conglomerate andreporting to the one CEO. A company without subsidiaries may have one person execute theroles of CEO and president (and perhaps even chairman).The
CFO
(Chief Financial Officer) leads the financial structure of the company: how it raisesmoney to fund operations, how it accounts for the business and how it reports to owners(shareholders).It's important to remember two significant facts about actions taken by officers:1.Executive officers have the authority to legally bind the corporation; and2.Officers are not personally liable for their acts while acting (lawfully) on behalf of thecorporation.
Shareholders
 are the owners of the corporation. Each share of stock represents a financialinterest in the company. Shareholders can receive stock for cash or services to the company.Shareholders are responsible for electing the Board of Directors. Unless the shareholders arepart of the management team (directors or officers), they have no authority to control theoperations of the company. If they are dissatisfied with the company, they may elect a newboard of directors or simply sell their shares. When the company has a profit, it may pay partor all of it to its shareholders in the form of a dividend.
Who are other stakeholders?
 A stakeholder is a person or group not owning shares in an enterprise but having an interest inits operations. Examples are the employees, customers, creditors (e.g., banks, bond holders),suppliers, regulators, and the community at large.
How is a Corporation formed?
A company must write several legal documents and file them with a state in order to “becomeincorporated.A Corporation's "
Articles of Incorporation
" is the main filing document, whichbegins the corporation's existence under state law. Once filed, the corporation commencesexistence.A corporation's Articles of Incorporation can range from very simple to extremely complex.Articles of Incorporation contain information that all states need in order to form thecorporation. Generally included in the articles are items such as: the name and purpose of thecorporation, the names of the initial directors, the name of the Registered Agent, and thenumber and par value of authorized shares of stock. Requirements vary by state.
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Bylaws
serve as the internal operating document for the corporation. Bylaws are adopted byevery corporation, and contain rules about shareholder voting, required meetings, stock, themakeup of the board of directors, and the corporation’s fiscal year. Generally, most states donot require that Bylaws be filed.Limited Liability Corporations (LLC’s) must also create similar documents; they are calledArticles of Organization and the Operating Agreement
Where does a Corporation Get Money to Begin Operations?
A business corporation must sell shares of stock in order to capitalize the corporation, that is,provide the corporation with its own capital, separate from the money of its owners. Thisseparation provides part of the support for shielding the shareholders from personal liability forthe debts and obligations of the corporation.Stocks and shares are certificates representing the amount of money a shareholder hasdecided to invest in the corporation. Owning stock makes the holder a part-owner of thecorporation, and entitles the shareholder to certain rights, including voting rights anddividends. At formation, a company decides how much stock will be issued, and how manydifferent classes of shares it will have (common, preferred, etc.). This information is containedin the Articles of Incorporation.Generally, common stock entitles the owner to vote for directors and receive dividends. Owningcommon stock does not guarantee that dividends will be paid, however. The board of directorsmust look at the corporation’s financial situation and decide whether it can legally authorizedividends to be paid. Finally, dividend amounts are split equally among all common shares anddistributed to the shareholders.Preferred stock usually entitles the owner to receive a certain amount of dividends each year,provided the corporation can legally authorize that payment. Preferred shareholders are paidbefore common shareholders. Most small corporations do not have preferred stock.
Questions:
1. List at least 6 functions of a Board of Directors.2. List 3 responsibilities of the Chairman of a company.3. List 5 job responsibilities of the CEO of a company.4. What are the responsibilities of a company President?
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