Who Do the Stockholders of a Corporation Elect?
In a corporation, whether it is a large company or a small business, the rules governing the corporate business structure must be followed. As the owners of a small corporation, the shareholders should be aware that under the rules, they have a limited say in how the company is run. The votes at a shareholder meeting let the owners express their will on the management of the business.
The most important vote that shareholders of a corporation make is to elect the company's board of directors. A corporation must have a board and the members of the board of directors set the goals and provide guidance on how the company will be managed and run. Once the shareholders have elected a board, the directors as a group then vote on the propositions that come before the board. Individual members of the board of directors have no power on their own. Corporate rules require that the board of a corporation act as a group for the benefit of shareholders.
The primary duties of a corporate board of directors is to select and guide the top management of the company. It is the board and not the shareholders who select the individuals who will actually manage the company. The board will name the people for positions of chief executive officer, chief financial officer and other "C" level positions the company may have. The board has the right to change out upper management if it believes the interests of the shareholders are not being served.
With a small business corporation it is likely that a few shareholders are the primary owners of the business. The major owners/shareholders may also serve on the board of directors and as the high-level management of the company. To keep control of the company, these shareholders must make sure they have enough shareholder vote to elect a board of directors that includes the right members. It is possible to give different voting rights to different classes of shareholders to make sure the outcome is what the major owners want.
For a new small business, the choice for business structure often falls to choosing between the S corporation or a limited liability company. While there are pros and cons to each, the S corporation must follow corporation rules regarding the election of a board of directors who then have oversight of the company. With a LLC, the owners are called members and the members can vote for any type of management structure that works for the group. The LLC business type may give more flexibility to a small business and avoid the setting up of a board of directors as the middleman between owners and management.