Orange County Business Lawyers Discuss Setting Up the Right Corporate Management Structure

August 21, 2017

It is important to carefully consider your corporate management structure before incorporating.

As a new business, you may be considering incorporating because of the many liability protections a corporation offers the business owners. While incorporating can potentially offer many advantages to a new business, if done wrong it can also lead to a venture failing before it even begins. Orange County business attorneys say that one of the most important issues to consider before incorporating is the business’s corporate management structure. California corporations typically have a three-tiered corporate management structure that includes shareholders, a Board of Directors, and corporate officers.

Shareholders

Under California law, shareholders are the owners of a corporation. Shareholders can have many rights and responsibilities. Shareholders generally have the right to share in the profits of the business and to elect members of the Board of Directors (unless they hold non-voting shares). Shareholders’ other rights and responsibilities are established by the Articles of Incorporation, and various statutes and court cases.

Board of Directors

Generally, shareholders do not manage a corporation. Rather, they elect a Board of Directors to direct the management of all corporate activities. The Board of Directors consists of individuals who are either named in the Articles of Incorporation or elected by the shareholders. Any natural person can serve as a director. However, great care should be taken in who is selected as a director as their actions will have a significant impact on the corporation’s success. In addition, directors also have a very demanding fiduciary duty to look out for the best interest of the corporation, including avoiding personal conflicts of interest.

Corporate Officers

The Board of Directors, particularly with large corporations, will usually select corporate officers to manage the day-to-day operations of the business. Officers can include such positions as President/Chief Executive Officer (CEO), Treasurer/Chief Financial Officer (CFO), and a Secretary. The Board of Directors can select any individuals they deem appropriate to fill these positions. In addition to the duties the Board of Directors bestows upon corporate officers, they also have specific fiduciary duties imposed by law.

Establishing a well-defined corporate management structure during the incorporation process can go a long way towards avoiding disputes between shareholders, directors, and corporate officers in the future. However, doing so is not always an easy process, especially if you operate a specialized business for which the law provides special rules. If you are considering starting a business as a California corporation, the Orange County business attorneys at Fitzgerald Yap & Kreditor, LLP can help you set-up a corporate management structure that is right for your business. Give us a call at (949) 788-8900.