Laying the Groundwork: Corporations and Boards of Directors

by | Jan 8, 2018

Corporations

In a casual context, person clearly refers to a human being. Legally speaking, it’s not so cut and dried. Person or Legal Person, in a legal context, can also refer to entities people create, which hold rights in and of themselves.

A corporation is one such entity. Legally speaking, a corporation is a person with rights and obligations that are distinct from its creator(s). This brings with it a slew of benefits for stakeholders in the corporation, not the least of which is controlled liability should something go awry.

Although each state has its own procedure for the creation of a corporation, generally speaking, a certificate of incorporation must be filed with the Secretary of State.

How do corporations and companies differ?

“Company” is a catch-all term for any business. Corporations are a variety of company that carry with them specific legal rights that other companies don’t have.

Board of Directors

A governing body made up of a designated number of seats, the board is responsible for making formal decisions on behalf of the corporation. The board can consist of a single member, or any number agreed upon the the founders. It is common for startups to structure their board such that the number of members can be adjusted easily. It is worth noting that the number of directors cannot be greater than the size of the board.

In the event that decisions are made in board meetings, half the board plus one additional member (also referred to as the quorum) is required to be in attendance. Otherwise, the board may give written consent to a given action; however, in this case the decision must be unanimous amongst board members.

Once stock is issued, a defining element of a corporation, stockholders are responsible for selecting board members. For startups, the board generally consists of founders until their Series A financing. At that stage, venture capitalists often join the board as well.

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