Answer the following: a. Compare the respective roles of the officers, board of directors, and the shareholders of a corporation. Who runs the corporation? Explain your answer and give examples of the kinds of tasks each performs. b. How does the management structure of a closely held corporation differ from that of a publicly traded corporation?

Answer 1

a. The officers of a corporation handle the day-to-day business affairs of the company. They are considered agents of the corporation, and are selected by the board of directors. Because of this, officers answer to the board of directors rather than directly to the shareholders. The board of directors sets the broad guidelines by which a corporation operates. They are responsible for making decisions about overall policy. Directors declare dividends, authorize major corporate contracts, appoint or remove officers and set salaries, and issue authorized shares of stock. Directors are obligated to be honest and loyal in their actions. Directors are not agents or trustees of the shareholders or of the corporation, but they are fiduciaries and must perform in good faith, in the best interests of the corporation, and with due care. Shareholders own the corporation. The only way, however, shareholders can exercise influence over corporate policy is through the election of the board of directors. They don't have a direct voice in policy decisions. Shareholders are neither agents nor managers of the corporation. Shareholders do have the right to approve of certain extraordinary matters and to approve corporate transactions that are void or voidable unless ratified. Shareholders also have the right to bring suits to enforce these rights.
b. As a close corporation is one whose shares are closely held by members of a family or relatively few persons, the management structure is much like that of a sole proprietorship or a partnership. A close corporation has a single shareholder or a closely-knit group of shareholders, which eases the management task. A publicly traded corporation, on the other hand, may have hundreds or even thousands of shareholders. These shareholders are usually complete strangers, and not closely knit as in a close corporation. The management of a publicly traded corporation is much more complex than that of a close corporation, simply because of the increased number of shareholders and because of the public accessibility of the stock. Statutes have relaxed the nonessential corporate formalities for close corporations.