Video: An Orange County, CA Small Business Lawyer Defines Corporate Roles

Many small business owners become confused about how different roles work within their corporation. To effectively run a business, you need to know what each role entails. Orange County, California small business lawyer Andrew Gale clarifies the distinctions between shareholders, the board of directors, and officers below.

An area of confusion for owners of small business corporations is the difference between shareholders, the board of directors, and officers. When you’re running a small business corporation, you wear very distinct and different hats. You may act as a shareholder, a director, and an officer at the same time. These roles can quickly become muddled in your mind. But it’s important to understand the differences between them.

A Brief Description of Corporate Roles

Shareholders, directors, and officers perform distinct duties. Put simply, each acts as follows:

  • Shareholders own the company. If the company is sold, they’re the ones who enjoy the profits or suffer the losses. The shareholders elect members of the board of directors.
  • The board of directors sets the overall vision for the company. Directors may elect officers, approve loans, and make decisions about real estate and salaries. They also approve decisions concerning legal and tax matters.
  • The officers run the company on a day-to-day basis. Their decisions concerning tax, legal, and other important issues must be approved by the board of directors. They follow the direction of the board to implement their vision for the company.

While officers are accountable to the board, the board is accountable to the shareholders.

How Small Business Owners Get Confused

The tricky part for people who run small business corporations is that they take on multiple roles. If a corporation consists of only one or two individuals, they may act as shareholders, directors, and officers simultaneously. So it’s easy to understand why they might get confused.

But specific tasks are designated for shareholders, directors, and officers. When facing decisions, it’s important for to ask “What’s my capacity for making this kind the decision, and am I acting in my appropriate level of authority?”

Large Corporations Avoid Confusion More Easily

For large corporations like Microsoft or Apple, it’s less confusing. It’s simpler because people don’t take on multiple roles as they do in a small corporation. There’s a specific professional board appointed. It consists of people with expertise in different fields. Together they establish a vision for the company. They hire professional officers to run the company. They also hire the president, the secretary, the treasurer, and a lot of other employees.

Corporate roles are a lot clearer when you’re running a big corporation. For small business owners, it’s easy to get confused. But the law is the same for Microsoft as it is for you. And when you’re operating in various capacities within your corporation, it’s important to remember what it is that you’re doing and why it is you’re doing it.

Still have questions about corporate roles (or other business law matters)? Contact Orange County corporate attorney Andrew Gale today.