Corporate Structure

Corporate structure and corporate hierarchy although linked are independent. There are specific requirements and expectations of a Corporation's Board of Directors (BOD) and Corporate Officers in the positions that they hold, the judgments that they make, and their fiduciary obligations. This paper will provide an overview of these duties from the perspective of a publicly held company, with illustrations from the writer's experience as General Manager in a multi-laboratory close corporation currently undergoing compliance review before an initial public offering (IPO.)

“Traditionally, the Board of Directors has had the authority and the duty to manage the Corporation.” (Mallor, Barnes, Bowers, & Langvardt, 2010. p.1049). The authors go on to explain that rather than manage the business directly due to other and sometimes contrary interests, “. . . corporations may be managed under the direction of the Board of Directors.” This is a function and benefit of the Model Business Corporation Act (MBCA) which, in addition to recognizing the power of a Corporation to behave as would an individual, provides for a BOD to delegate and cede authority to its appointed corporate officers. The MBCA was written in 1950 to standardize definitions and expectations regarding the obligations and liability of directors in corporations.

In general, close corporations consist of a small number of shareholders, some of whom operate in the day-to-day operation of the corporation. In effect, the corporation acts in the same manner as a limited partnership. (This contrasts with shareholders of public corporations who have no right to manage based on the shareholder status. They can vote and are afforded rights and protections under the MBCA.) “Close corporation shareholders enjoy rights and duties beyond the rights and duties of shareholders of publicly owned corporations.” (Mallor et al 2010, p.1083).

Perhaps the biggest difference between public and close corporations is...