The basic structure of a corporation
Sole proprietors are responsible for raising capital, taking out loans and signing contracts. This makes them liable for both business debts and personal debts. In contrast, corporations are separate from their owners.
Because a corporation is responsible for its own debts and lawsuits, it’s required by law to have a specific hierarchy to ensure accountability. The initial organizational meeting provides an opportunity to elect or appoint board members. Here’s an overview of a corporation’s basic structure:
- Shareholders: Have an ownership stake in the company. They also have the right to receive dividends (if applicable) and vote on corporate decisions.
- Directors: Are the governing body of the corporation. Directors oversee management and policy decisions, ensuring compliance and effective governance. A corporation’s bylaws indicate how long each board member can serve before they must be reappointed or reelected.
- Officers: Are the key executives who oversee daily business operations. Each officer is appointed by and reports to the board of directors, ensuring a high level of accountability. Officers oversee specific business functions based on their knowledge, skills and experiences.
What do corporate officers do?
Some states may require corporations to appoint certain officers, such as a president, treasurer or secretary. Check your state’s laws to understand any specific requirements. If there are no mandates, you can decide how many officers to appoint and what responsibilities they will take on.
In general, corporate officers are responsible for managing day-to-day operations. Before forming a corporation, review these key considerations to understand how officers, directors and shareholders function:
- Directors can serve as officers if appointed according to the corporation’s bylaws.
- A single person can serve as a shareholder, director and officer in a small corporation.
- Some states allow one person to hold more than one officer role.
- Additional officers can be added as the company grows and business needs expand.
- In smaller corporations, one person may serve in multiple roles. In larger companies, officers often oversee specific departments or functions.
There are many types of executive roles, such as Corporate Controller, each with distinct responsibilities. Here are some summaries of what each officer does.
1. Chief Executive Officer (CEO)
The Chief Executive Officer (CEO) is the top-ranking officer of a corporation and reports directly to the board of directors. Acting as the link between the directors and staff, the CEO is responsible for overseeing the company’s daily operations and communicating corporate developments to the board.
This role oversees all aspects of the business according to goals set by board members. Key duties include:
- Developing short-term and long-term strategic plans
- Managing budgets
- Understanding competitive trends
- Ensuring profitability
- Creating a positive company culture
- Motivating employees
- Representing the company publicly
- Developing partnerships and finding investors
- Making high-level decisions
- Making strategic decisions that impact the company’s direction
- Supporting other officers and executives in their work
2. Chief Operating Officer (COO)
The Chief Operating Officer (also known as the Chief Operations Officer, or COO) is the second-highest ranking officer, reporting directly to the CEO. They manage day-to-day operations so the CEO can focus on high-level business strategy.
The responsibilities of a COO include:
- Working with officers, executives and department heads to ensure team members meet company objectives
- Designing and implementing processes to improve efficiency
- Ensuring each department adheres to its quarterly or annual budget
- Evaluating performance
- Updating the CEO on business operations
- Managing external partnerships
- Filling in for the CEO as required
3. Chief Financial Officer (CFO)
The Chief Financial Officer (CFO) serves as the treasurer or comptroller of a corporation, overseeing the company’s finances and ensuring its financial health.
A CFO’s responsibilities include:
- Creating internal reporting systems
- Overseeing financial recordkeeping
- Ensuring compliance with relevant laws and industry accounting standards
- Preparing financial statements and reports
- Identifying and mitigating financial risks
- Planning and implementing financial strategies
- Developing and executing financial strategies to support the corporation’s growth
- Analyzing data to identify areas of profitability and weakness
- Preparing budgets, tracking cash flow and monitoring company expenditures
- Making recommendations to reduce costs
- Providing input on financial planning strategies, loans, investments and risk
- Managing banking activities
- Overseeing financial contracts and agreements
- Liaising with government officials, banks and investors
4. Corporate Secretary
The Corporate Secretary maintains detailed records according to state and federal law, corporate bylaws and the company’s articles of incorporation. Some companies combine the Corporate Secretary role within another position or expand it into an executive position, such as Chief Governance Officer.
The responsibilities of a Corporate Secretary include:
- Issuing meeting notices to shareholders and directors
- Creating meeting agendas
- Taking minutes at shareholder and director meetings
- Maintaining shareholder and director lists
- Ensuring corporate documents are filed with the state and in the company’s corporate records
- Maintaining records of corporate meetings
- Recording shareholder and director meetings
5. Chief Marketing Officer (CMO)
The Chief Marketing Officer (CMO) oversees the effort to promote a company’s products and services. A CMO can also develop a strategy to help improve your brand’s reputation.
The scope of a CMO position includes:
- Overseeing marketing, advertising and sales via traditional and digital channels
- Creating and implementing advertising campaigns
- Conducting market research
- Understanding customer needs and expectations
- Improving the customer experience
- Determining how to increase marketing effectiveness without a substantial increase in marketing costs
- Adapting strategies and maximizing opportunities to reach customers
- Handling reputation management and public relations
6. Chief Information Officer (CIO)
The Chief Information Officer (CIO) focuses on a company’s internal technology needs and ensures employees have the systems they need to meet the corporation’s business goals.
A CIO typically performs these duties:
- Overseeing the company’s technology infrastructure
- Understanding the needs of each business unit
- Standardizing processes across key business functions
- Recommending software and hardware to improve workflows
- Working with vendors to implement new technology solutions
- Ensuring internal technology systems are working as expected
- Understanding security risks and protecting data
7. Chief Technology Officer (CTO)
A Chief Technology Officer (CTO) develops and executes a company’s technology strategy. This position may report to the CIO or directly to the CEO.
The CTO role typically includes the following responsibilities:
- Understanding the impact of technology on customers, products and services
- Identifying profitable opportunities using technology
- Developing products and services to meet customer needs
- Designing technical frameworks and overseeing product development
- Working with engineers, vendors and suppliers
- Tracking metrics and monitoring performance
C corporations vs. S corporations
C corporations and S corporations are both business entities. However, they’re structured in different ways. In an S corporation, the shareholders claim business income on their personal tax returns, which can help reduce the company’s tax burden. In a C corporation, the company pays tax on its profits, and shareholders pay personal income tax on their dividends. This is known as double taxation.
You may want to consider an S corporation if you have a small number of shareholders and are concerned with limiting your tax liability as much as possible. Business owners who want to attract investors or take advantage of increased flexibility generally use the C corporation structure.
If you’re not sure which structure is right for your business, consider working with a corporate attorney to learn the pros and cons of each one.
Officer liability and indemnification
Officer liability and indemnification are critical components of effective corporate governance, especially for high-level management executives. Corporate officers have significant responsibilities and must always act in the corporation’s best interests.
In both C corporations and S corporations, officers can be held personally liable for certain actions, including breaches of fiduciary duties, violations of federal securities laws or involvement in financial crimes. For example, if a Chief Information Officer or Corporate Secretary fails to comply with legal requirements or acts outside the scope of their authority, they may be held personally liable for resulting damages.
To shield officers from personal financial loss in lawsuits, corporations provide indemnification, covering legal fees and judgments for actions taken in good faith. This protection is contingent on officers fulfilling their fiduciary duties. The board of directors determines when indemnification is appropriate, guided by the corporation’s bylaws and applicable state laws, ensuring adherence to proper corporate governance.
Risk management in officer protection
Risk management is another essential aspect of officer protection. Corporations frequently purchase insurance policies, such as directors and officers (D&O) liability insurance, to further shield their officers from personal financial risk. Additionally, officers may be required to disclose beneficial ownership information to the Financial Crimes Enforcement Network, ensuring transparency and compliance with federal regulations.
Note that indemnification isn’t absolute. Officers may not be protected if they act in bad faith, engage in fraud or violate the law. In such cases, they can be held liable and may not receive indemnification from the corporation. The board of directors, including the CEO who reports directly to the board, is responsible for reviewing the circumstances and making decisions regarding indemnification.
Ultimately, understanding officer liability and compensation for losses is important for all corporate officers. By acting in good faith, adhering to fiduciary duties and following sound corporate governance practices, officers can help protect themselves and the corporation from unnecessary risk. The board of directors plays a pivotal role in supporting officers and ensuring that appropriate indemnification and risk management measures are in place.
General responsibilities of corporate officers
In addition to their specific job duties, corporate officers typically have some general responsibilities. For example, officers usually have the power to implement internal controls, which help protect company assets and reduce the risk of fraud. A Chief Financial Officer may implement controls such as requiring two signatures for checks over $1,000 or limiting the number of employees who carry company credit cards.
Corporate officers may also be able to delegate their authority. If a CTO has to take a business trip, for example, they might ask the company’s IT Manager to oversee all hardware and software until they return. Delegating authority promotes continuity when corporate officers are unable to perform their duties.
