What do your clients need to know about the difference between the role of a corporate officer, director, and shareholder?

November 5, 2019

 

 

 

In representing growing businesses, it is important to help clients understand the structure and role of people in their corporation.  With that client understanding, an employment attorney or other professional can be assured that client actions are taken with and by the appropriate stakeholder in the corporation.

 

Shareholder’s Role

 

Shareholders of a corporation have the power to: enact and/or amend the corporation’s by-laws, elect directors, and inspect the corporation’s books and records.  BCL § 601, 704, 624.

 

Director’s Role

 

After election by the shareholders, directors, not shareholders, manage “the business of a corporation.”  BCL § 701.  Accordingly, “[d]irectors hold discretionary management power over the corporation and thus make decisions that affect the economic well-being of shareholders. In exercising their managerial power, directors are subject to fiduciary duties . . .. The object of fiduciary duties is assuring loyal service to the interests of the corporation, conventionally defined by the interests of its shareholders. . ..”  Deborah A. Demott, Shareholders as Principals, accessible at https://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=1763&context=faculty_scholarship

 

In managing the business of the corporation, the corporation’s board of directors can appoint officers. 

 

Officer’s Role

 

Per BCL § 715(g): ”All officers as between themselves and the corporation shall have such authority and perform such duties in the management of the corporation as may be provided in the by-laws or, to the extent not so provided, by the board.”

 

It bears noting that the roles of a shareholder, director, and officer may be otherwise circumscribed by the shareholders in the corporation’s by-laws.  Per BCL §601 (b) ”The by-laws may contain any provision relating to the business of the corporation, the conduct of its affairs, its rights or powers or the rights or powers of its shareholders, directors or officers . . .. “

 

In helping clients align their real-world organizational structure of their business to these formal concepts will help ensure that their business have a solid foundation on which to continue their growth.

 

For more information about this article or other issues, please contact us The Bachman Law Firm PLLC at judith@thebachmanlawfirm.com or 845-639-3210.

 

 

 

 

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