Incorporating Your Business For Dummies by The Company Corporation

Author:The Company Corporation
Language: eng
Format: epub
Publisher: Wiley

Understanding the Role of Directors and Officers

In This Chapter

Understanding the roles and responsibilities of board members and officers

Knowing their legal duties

Deciding when officers and directors are personally liable for corporate acts

Avoiding personal liability for directors and officers

Corporations are creatures of statute with no power to act on their own. They must rely on individuals to do their work. For example, you may own a Ford, but don’t assume Ford, the corporation, made it. Individuals and other entities working on behalf of Ford, the corporation, designed, manufactured, and marketed your vehicle.

At the top of the corporate pile, you’ll find the board of directors acting on behalf of corporations. Next in line are corporate officers appointed by the board, followed by managers, rank and file employees, professional agents such as lawyers and accountants, and independent contractors including suppliers and others.

In a small corporation, the same individuals may serve as directors, officers, rank and file employees, and shareholders. When you serve in many different roles, keep in mind which hat you’re wearing at any point in time. Different hats mean different responsibilities and different legal duties.

If your corporation has a single officer, director, and shareholder, you must still maintain corporate formalities, some of which include documenting separate activities of the corporate board or shareholders. In some respects, wearing all the hats of the corporation adds to your challenge. How do you know which hat you have on or which role you’re playing at any time?

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