This week’s Insight discusses the control of a business – who makes the decisions. The answer is dependent on the business form (sole proprietorship, partnership, Corporation, LLC) and how it was set up in the first place. The worst decision-making setup (and the best for us lawyers) is to have a 50/50 split. So it’s important to put thought into decision-making or business management at the start of a business and as the business evolves.
Today I’ll discuss corporations and LLCs just to show the point.
All corporate decisions are made by the shareholders, Board of Directors, and Corporate Officers. Simple enough? Ha ha, it’s actually fairly easy. Properly drafted By-Laws will apportion decision-making authority among these three, from broad authority down to day-to-day authority.
Broadly speaking of course, shareholders decide who will be Directors; and may have a right to approve major corporate decisions (such as a plan of liquidation or bankruptcy; changes to share structure; changes to BOD structure).
Corporations are technically “run” by the Board of Directors. For example, the North Carolina Act states, “All corporate powers shall be exercised by … its board of directors.” This for all practical purposes means that the BOD makes major command decisions such as setting the goals, budget and direction of the business; appointing corporate officers and granting specific authority to them; to authorize certain major transactions such as signing contracts valued at over a certain $ amount.
Finally are the officers. Officers, such as President or COO, have only the authority given to them by the By-Laws or BOD resolutions. The powers are usually pretty broad, inasmuch as the officers run the day-to-day business. So a President may be given “general supervision, direction, and control of the day-to-day business and affairs of the Company”. This means hiring and firing, signing contracts, implementing the businesses direction set by the BOD.
An LLC can have one of two business management structures. They are completely different from corporations. Business decisions for an LLC can be made by either the members (similar to corporate shareholders) or by an appointed manager.
Member operated LLCs. Traditionally an LLC was “run” by it’s members – the owners. All decision-making authorities listed above for a corporation could be decided by the members in accordance with the Operating Agreement. North Carolina law however requires that certain decisions be made by unanimous vote (so I guess technically the N.C. legislature controls part of the business); but that can be superseded by a properly drafted Operating Agreement.
Much like a corporate officer, an LLC can also be run by a designated Manager who is not a member. The designated manager has all rights available to run the company, unless limited by the Operating Agreement.
Who Runs Your Company?
As you can see, the short answer is that everyone has a hand in making your business successful. For more information on business law and to consult with me on properly setting up your NC or IL business, call me at (312) 671-6453 or go to palermolaw.com