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It is important to remember that a corporation is a legally separate
and distinct business entity from its participants. Like every
business, however, it must ultimately be owned, managed, and operated
by people.
OWNERSHIP (SHAREHOLDERS)
A corporation is owned by shareholders
via units of ownership called shares. There may be different types
of shares with different rights, preferences, and privileges. Generally
speaking however, the amount of shares owned by a shareholder reflects
that percentage of the company owned by that shareholder. For example,
suppose that a corporation was formed with a total of 200 shares
(called authorized shares). Then suppose that upon formation, the
people who founded the corporation received 100 of the 200 total
shares (called issued shares). If you owned 50 out of the 100 issued
shares, then you would own 50% of the corporation. If the corporation
later sold the remaining 100 authorized shares to another person,
your 50% ownership would be reduced to 25%.
As a unit of ownership, a share confers upon a shareholder certain
rights that come with such ownership. One of those rights is the
right to vote upon certain matters. For example, the shareholders
vote upon who will serve on the board of directors.
MANAGEMENT (BOARD OF DIRECTORS)
Shareholders own the corporation, but they do not directly manage it. Management
of the corporation is up to the board of directors. However, it is the shareholders
that hire the board of directors. Each shareholder gets to vote on whom
to hire as a board member. New directors may be elected each year at the
shareholders' annual meeting.
The board of directors is in charge of a corporation's management and control.
Pursuant to California
Corporations Code section 300, "the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised
by or under the direction of the board". The board may delegate the
management of the day-to-day operations of the corporation, provided that
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised under the ultimate direction of the board. Thus,
generally, the board hires officers to run the day-to-day operations of
the corporation. The board of directors either votes upon the matters or
takes action by written consent.
DAY TO DAY OPERATIONS (OFFICERS)
Officers are hired by the board of directors
(unless provided otherwise by the articles or bylaws) to run the
day to day operations of the corporation. Every corporation must
have at least the following three officers: A president (or chairman
of the board or both), a secretary, and a chief financial officer.
The board of directors may hire (unless provided otherwise by the
articles or bylaws) other officers with titles and duties as it
deems necessary. California Corporations
Code section 312.
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laws of other states.