The terms used to describe statutory and operational positions in businesses often cause confusion and raise issues regarding corporate governance. Before operating your business, joining a board of directors, or serving as an officer, you should have a fundamental understanding of these titles.
For-profit corporations are required to have shareholders (owners) that elect directors who are responsible for the overall operation of the corporation. Inside directors are generally also employees or corporate officers, while outside directors are not. Corporations are also required to have statutory officers, generally president, secretary and treasurer elected or appointed by the board of directors. The corporation’s by-laws (the rules of the corporation) identify the titles and responsibilities of directors and officers. There can be numerous other titles and positions established by the board of directors or president, generally described in employment agreements.
Limited liability companies are required to have members (owners) that operate or select managers (manager managed) responsible for the entity. An operating agreement (rules of the company) generally sets forth the titles, powers and responsibilities of members and managers.
Partnerships, whether limited or general, are owned by partners. Limited partners have limited liability for partnership debts and often limited roles, whereas general partners have general liability and authority. Partnerships may have various employees with various titles that do not have statutory responsibilities.
Not-for-profit entities, such as charities, trusts, associations and other organizations, have directors or a board of directors responsible for its operations. Directors are appointed by other directors or the founder or beneficiary of the entity. They also have statutory officers, president, secretary, treasurer appointed by the board, and may hire other employees.
Brooks, Tarulis & Tibble, LLC advises a number of businesses on corporate governance, entity selection and risks and benefits of board participation. If we can assist you in this matter, please contact me.