| tart --> | | | | but I am technically an owner. So, can I storm in to the |
| If you form a corporation for a business, it can | | | | office of the CEO and demand the company put out |
| become very confusing when the issue of running the | | | | a particular type of software? Of course, not. I don't |
| actual business arises. For instance, what is the | | | | own enough shares to have any such leverage. Even |
| difference between shareholders and directors? | | | | if I did, I could not directly harass the CEO. Ah, but I |
| The corporation is the oldest formal business entity we | | | | could do it indirectly through the directors. |
| have. How old? Well, do you really care? It is old. The | | | | Every corporation has a board of directors. This is true |
| reason it has been with us for so long is it provides a | | | | for a giant like Microsoft and a tiny small business that |
| unique protection for business owners. Simply put, | | | | has incorporated. The board of directors is responsible |
| individual owners are not responsible for the debts of | | | | for the performance of the business. They set general |
| the corporation. If a pharmaceutical company that is a | | | | policy and strategy for the corporation. They do not |
| corporation puts out a drug that hurts people, the | | | | handle day to day decisions unless they are significant |
| people that have purchased shares in it on the stock | | | | ones. Instead, the board elects officers of the |
| exchange cannot be held liable for the resulting | | | | corporation to run the day to day stuff. This includes |
| judgments. | | | | the CEO. |
| This liability protection comes with a price. To maintain | | | | Every year, the corporation has an annual meeting. At |
| the protection, the corporation must be run in a formal | | | | the meeting, the shareholders vote on who will be |
| manner. Meetings must be held, and certain positions | | | | directors for the next year. If things are going well, the |
| must be filled or the entity can be considered a sham. | | | | same directors are usually re-elected. If things are |
| A sham corporation loses the ability to protect its | | | | going poorly, there can be changes. Regardless, this is |
| shareholders from liability. | | | | how the owners of the corporation, the shareholders, |
| Two of the positions that are key within a corporation | | | | control what is happening. If a majority of shareholders |
| are those of shareholders and directors. Most people | | | | hate the CEO, they can push that officer out by voting |
| confuse these two roles, particularly in a small | | | | in directors that will make a change. |
| business. This is because a small business that has | | | | In a small business corporation, the shareholder and |
| incorporate may have the same people filling both | | | | director roles can become confused. Simply put, a |
| roles. There are, however, distinct differences. | | | | corporation with three shareholders is not going to |
| A shareholder is a person that owns part of the | | | | have an independent board. Instead, the three |
| corporation. If I go out and buy 100 shares of Microsoft | | | | shareholders will often also be the three directors. In |
| tomorrow, I am a shareholder and owner of Microsoft. | | | | turn, they will also probably be the elected officers, |
| Now, 100 shares are not exactly going to give me a lot | | | | receptionist, janitor and so on. |
| of clout given the fact Microsoft has millions of shares, | | | | |