Company Structure, Formation & Corporate Basics

Who makes decisions for the company?

The shareholders of a corporation are its owners, and they vote their shares to elect the directors. The directors sit as a board, which, typically acting through a majority, oversees the corporation’s management and sets the overall corporate strategy and direction. Directors have fiduciary duties, so they generally must act in the best interests of the corporation and its shareholders. The corporation’s directors elect officers, including a CEO, who conduct the day-to-day business operations. The board must also approve certain significant corporate matters, such as stock issuances and important contracts.

As a result of this framework, corporate officers generally control the corporation’s day-to-day decision making, but they must answer to the board, which in turn has responsibility to the corporation’s shareholders.

When a corporation is formed, all of its shares are generally allocated among the founders. Together, the founders vote their shares to elect an initial board, which may consist entirely of founders or may include a key advisor or two. As the corporation completes equity financings, the investors will become shareholders, and they may require representation on the board, as well as other control rights. As a result, as corporations mature, the founders’ ownership and control rights tend to be diluted, often quite significantly.