7 minute read
A C Corporation (C Corp) is a common business models used today. A board of directors is a requirement when forming and maintaining a C Corp. This blog will explore the common requirements and duties that a C Corp’s board of directors are bound by.
A C Corp is a legal entity owned by at least one individual. There are three main groups under the C Corp’s structure: the board of directors, the shareholders, and the officers of the corporation. A C Corp is legally separate and distinct from its shareholders and board of directors and taxed on its own income. C Corps are required to do several things upon formation, varying by state law, which often include forming a board of directors, filing articles of incorporation, and creating corporate documents like bylaws.
C Corps are generally required to create a board of directors upon formation. State laws vary regarding how many directors must be on the board, but states often require one or more persons to be on the board.
Once the C Corp is formed, the board of directors must be set up. The board of directors is appointed by the shareholders of the company, and shareholders can appoint themselves to serve as directors of the C Corp. The C Corps bylaws should distinguish how long an appointment as a director is, when a new vote must occur to appoint new directors, and the steps required to remove a director if necessary.
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For a private, non-publicly traded corporation, the board of directors is determined by shareholders’ discretion. As noted above, the shareholders themselves may serve as directors of the corporation. It is very common for smaller companies to have shareholders who also serve as both officers of the company and as members of the board of directors.
For publicly traded companies, the corporation will be subject to much more regulation and oversight. It is common for the CEO of a publicly traded corporation to serve as the head of the board of directors. While anyone—including shareholders and officers—may still serve on the board of directors, certain federal regulations require that a certain number of directors on the board be outside directors. Outside directors are directors who are not affiliated with the company, stakeholders, or employees of the corporation.
Where officers of the company handle the day-to-day management of the corporation, the board of directors provides large-scale oversight of the business. The board of directors works to set company policy, manage shareholder expectations, and sometimes approve large, material financial decisions like approving a major real estate purchase or acquisition of a competitor. Directors handle the issuance of stock and the decisions regarding whether or not to issue dividends to shareholders.
Other board of director duties include:
The C Corp structure can provide significant benefits to business owners and shareholders of companies who are seeking to maximize their tax benefits. However, C Corps also have several key requirements that must be strictly adhered to in accordance with state and federal laws. Optimizing your business structure by establishing your business entity as a C Corp may significantly reduce taxes.
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