Welcome back to Founders University, our core curriculum designed to provide start-up company founders with the basics they’ll need to get their company off the ground.
In our first session, we covered the basic differences between a C corporation and an S corporation. For our second session of Founders University, we share an overview of corporate governance by Goodwin Procter partner Dave Cappillo. In this course, Dave highlights the basics of a corporation’s governance structure, including the role and responsibilities of both shareholders and the Board of Directors.
Sharpen your pencils, let’s go back to class!
The Basics of Governance Structure
The owners of a corporation are called the shareholders. Shareholders have several important functions:
- They elect the Board of Directors;
- They are required to approve changes or amendments to the corporation’s charter (or Certificate of Incorporation);
- They approve creation of new equity securities;
- They are required to approve stock option plans; and
- They are required to approve fundamental changes in the company (such as sale of the company or a sale of substantially all of its assets or business).
Each member of a corporation’s Board of Directors has a fiduciary duty to the company and to the shareholders to act in the best interest of the company and its shareholders.
The following are some standard characteristics of a corporation’s Board of Directors:
- The Board generally has the right to elect officers. Under Delaware law, these officers include: a president, a secretary, and a treasurer;
- Board members are empowered to create committees of the Board;
- The Board can generally authorize the issuance of stock and are required to authorize the issuance of stock; and
- The Board must approve material contracts, and approve equity awards under the company’s stock option plans.
That’s it for our second lesson. Don’t miss the next session of Founders University where we will discuss best practices for creating governance and formation documents.