A corporation has three main categories of stakeholders involved in the financial and management aspects of the company. While all play a crucial role, officers work more closely with a corporation’s managers and supervisors, arguably having a more direct impact on the company’s success.
- Officers – Officers are individuals appointed by the board of directors to manage the corporation. They act as agents of the board to ensure the organization carries out the directors’ decisions. Corporate officers’ roles and the number of officers can vary based on state law and the company’s governance documents. Common corporate office positions include Chief Executive Officer or President, Vice President, Chief Operations Officer, Chief Financial Officer or Treasurer, and Corporate Secretary.
- Directors – Directors are individuals who serve on the corporation’s board of directors. The company’s shareholders appoint or elect the directors to oversee the management of the company.
- Shareholders – Shareholders are the owners of the corporation who have exchanged funds for shares of the company’s stock. A shareholder’s ownership rights are in proportion to their percent ownership in the company’s stock.
What Are the Various Types of Corporate Officers?
Who are the officers of a company? Appointed by the board of directors, corporate officers oversee the company’s management activities. The corporation’s bylaws describe the roles and responsibilities of each officer.
- Chief Executive Officer – The CEO or president is the corporation’s highest-ranking executive. This individual is responsible for the corporation’s activities at every level. Because the CEO reports directly to the chairperson of the board of directors, that person usually may not serve on the board of directors due to a conflict of interest.
- Chief Operations Officer – The COO reports directly to the CEO and oversees the company’s business operations. If there is an executive vice president in the organization, the COO will likely report to that person. In the absence of a dedicated vice president role, a COO will typically fulfill that position’s responsibilities, handling both strategy and daily operations.
- Vice President – A vice president serves as the second executive in charge at a corporation. Duties may be similar to those of a company’s COO. However, generally, a vice president’s role is strategic in nature while a chief operating officer has more tactical, day-to-day responsibilities.
- Chief Financial Officer – The CFO (or treasurer) is the executive in the company’s top financial position. This senior manager tracks cash flow and profitability and creates the company’s financial strategies. The CFO, who typically reports to the CEO, also holds responsibility for the corporation’s budget, financial record-keeping activities, and company audits.
- Corporate Secretary – This appointed individual maintains the corporation’s records, important compliance documentation, corporate seal, and the register containing shareholders’ names and contact information. In some organizations, the corporate secretary is also the company’s general counsel (attorney). The corporate secretary is responsible for sending information to the government, other oversight agencies, and the public (if required). Before shareholder meetings, the secretary sends notifications to shareholders so they know the date, and time and can review the past meeting’s minutes (a record of what happened at the meeting and the decisions made).
What Is a Board of Directors?
A board of directors is a group of individuals who oversees the corporation, making major business strategy and policy decisions. When a corporation is formed, its first directors are identified in its articles of incorporation or elected at the first organizational meeting. Typically, directors serve on the board until their terms have concluded and successors are elected at annual shareholders’ meetings.
The purpose of a corporation’s board of directors is to help ensure the company is being managed and operated properly. Boards can vary in size depending on the size of the organization and whether the corporation is publicly traded or private. Many corporations have between 8 and 12 directors on their boards. Some large public corporations have more than that while small, privately held corporations sometimes have as few as one board member. To avoid a tie when voting on decisions, many organizations opt to have an uneven number of directors. A corporation’s bylaws will set forth the required number of directors and any qualifications directors must meet to serve on the board. Some states also have rules governing aspects of corporations’ boards.
What Are Corporate Officers?
The corporate officers are high-level management executives. They have responsibility for carrying out the board’s initiatives and policies through their day-to-day decisions and management of the company. Unless prohibited by the corporation’s bylaws or state law, officers may also be shareholders or directors.
What Qualifications Must Corporate Officers Have?
A corporation’s bylaws should prescribe the qualifications criteria for corporate officers, the selection process for choosing officers, and the grounds for removing them. Bylaws also list the titles of officers and describe their roles and responsibilities.
Many states require that corporate officers must meet the fiduciary duties of:
- Duty of Care – Duty of care means officers must demonstrate care in their decision-making on the organization’s and its shareholders’ behalf.
- Duty of Loyalty – Duty of loyalty means they must put the corporation’s and its shareholders’ interests first.
- Duty of Good Faith – Duty of good faith means officers will act with integrity and honesty in carrying out their corporate responsibilities.
Are Officers Considered Employees of the Corporation?
Things can get messy if a corporation doesn’t classify its officers correctly. If officers are involved in the day-to-day operations and administration of the company — working on behalf of the corporation — the IRS considers them employees. As employees, they must receive a salary or wages (which are subject to FICA tax and income tax) in compensation for their services.
Here’s what the IRS website says, “An officer of a corporation is generally an employee. However, an officer who performs no services or only minor services and who neither receives nor is entitled to receive any pay is not considered an employee.”
So, if an officer is not working in the business, they can likely be paid through profit distributions alone.
Can Corporate Officers Be Held Personally Liable?
One of the benefits of incorporating a company is that the corporate business structure provides personal liability protection to the corporation’s officers, directors, and shareholders. A corporation is a separate legal entity from its stakeholders. Therefore, officers are generally insulated from personal liability related to performing their corporate duties or from having an ownership interest in the business. So if someone sues the corporation or the company falls into financial difficulties, officers are typically not held liable for those obligations.
Note, however, that a corporation must stay in good standing with the state by fulfilling all its compliance responsibilities (e.g. filing tax returns, paying taxes, filing annual reports, maintaining a registered agent, etc.) on time. If it fails to do so, a court may deem that it has “pierced the corporate veil” and the business may lose its status as a registered business entity. As a result, the corporation’s officers — as well as its directors and shareholders — might be held personally liable.
Other instances when an officer could be held liable is if the individual committed fraud or other illegal activity under the corporate entity, intentionally caused harm, or possibly even if they were negligent in their duties (failure to act). They might also be held liable for a corporation’s debts if they personally guaranteed a loan or line of credit given to the corporation.
Keep in mind the different states have different rules regarding the liabilities of officers and other key corporate stakeholders. It’s essential for all involved in the ownership and executive management of an organization to understand their risks. To gain clarity and learn how to best protect themselves, officers should consider discussing their questions and concerns with an attorney experienced in business law.