Who Are the Principal and Agents of a Corporation? | Your Business
Whether a particular decision has to be made by the board meeting or the general The relationship between directors and shareholders is a complex one . The most important one is the right to vote, for example, to elect the corporation's board of directors or change the corporation's bylaws. Shareholders vote on. A corporation is a complex business structure made up of many different individuals. This lesson explains the corporate roles of shareholders.
Information Although the shareholders are the legal owners of the corporation, they have limited avenues to make decisions.
Information is often clouded for shareholders of privately held corporations because accounting doesn't have to follow rigid federal regulations that apply to publicly held companies. Chief executive officer pay, for example, is not restricted.
Unlike public corporations, privately held companies do not have as many disclosure rules. Shareholders -- often family members, angel investors and those close to the owners -- are not as concerned with the day-to-day operations or accounting procedures as they are with profits.
The Board of Directors Although the corporation is obligated to its shareholders, this can become murky legal territory.
Legal Relationship Between Shareholders & CEOs
Primary shareholders in private companies often are upper management as well. So while the company has the goal of maximizing profits and shareholder values, the board of directors can take its own initiatives.
Shareholder Control Shareholders of privately held corporations can vote out directors if they can garner a majority. The shareholders own the corporation, while the managers control and direct it. The CEO's legal duties, expectations and responsibilities generally extend from this corporate hierarchy.
What Is the Relationship Between a Corporation & Its Shareholders?
A CEO's failure to uphold the responsibilities of his office can result in personal liability for the company's debt and legal actions from shareholders. Basic Job Description The chief executive officer and other corporate officers represent the company in all of its regular operations.
The CEO acts on the small business's behalf in most legal matters, and thus holds the authority to bind the corporation in contracts, debt obligations and legal proceedings. The extent of a CEO's power to make unilateral decisions for the business varies according to the business's governing documents, which are legally enforceable.
The CEO reports directly to the board of directors. Fiduciary Duties Both the board of directors and the CEO of a small business have a fiduciary responsibility to the business's shareholders.
The fiduciary duties are legal concepts that form the basis of a CEO's legal relationship with his company's owners.
Director vs Shareholder and the Types of Directors - Michalsons
According to the American Bar Association, courts have ruled that a CEO's relationship with his small business's shareholders carries more legal responsibility than his relationship with his company's creditors. This is because the creditors' relationship with the company exists purely as a result of a legal contract. The shareholders' relationship with the CEO, by contrast, entails both a binding contract and the trust of that CEO in controlling the shareholders' property.