Idaho Business Law Difference Between Shareholders and Board of Directors

By Lane V. Erickson, Idaho Business Attorney

In many of the articles that we have on our website we talk about the importance of choosing the right structure for your business. These options include being a sole proprietor which means that you don’t have any business organization at all but simply operate under your own name. Alternatively, you can have a partnership where two or more individuals work together to make their business successful without formally organizing any type of business entity. Another option is that a person could choose to set up an LLC, a limited liability company, that provides the protections of a corporation but operates similar to a partnership. Finally, some people choose to use a regular corporation as their business structure.

Regardless of the structure you choose to use, for your business our goal is to help our you succeed. At the Racine law office, we have assisted clients in both the creation and operation of their businesses for more than 70 years. Our business attorneys have the skill, experience, and expertise to help each client with their business needs. Our business law attorneys include partners Lane Erickson and TJ Budge, and attorneys Nate Palmer and Dave Bagley. Each of the attorneys on our team have the ability to answer your questions and help you move forward in what business structure would be best for you and your operation.

The purpose of this article is to focus mainly on a corporation and its structure. By doing this we will help you be able to understand the differences that exist between shareholders and board of directors when it comes to the ownership and operation of a corporation.

Because this article is just a short summary of this area of the law, if you have questions or concerns, we encourage you to contact us for a free 30-minute consultation. Through this consultation we can answer your specific questions and help you with your business needs.

To properly discuss the differences between shareholders and board of directors we need to start with how a corporation is organized. Some corporations are huge like Apple, Google, Amazon, or other large companies. Other corporations are large but not as big as these businesses. Then, there are small business corporations that some people use to operate their local or regional business. Even though some of these organizations are huge and some of them or not, the basic structure of these corporations is the same.

Every corporation has owners. These owners are identified as shareholders because they have an ownership interest in the corporation itself. Some shareholders on a lot of shares or have a large ownership interest in a business, and some shareholders own very little shares.

Next, there are usually officers of the corporation as well. At the very least, there is a president, and a secretary. If there is a large business, there could be several different types of officers involved. These persons may have different titles, but their job is still the same. The president, or CEO of a corporation is the officer who actually oversees the entire operation of the corporation. There may be various other officers including Financial officers or organizational officers as well. Additionally, there could be lower-level vice presidents or supervisors or managers.

In addition to these there is usually a board of directors. This group of individuals are chosen to be the highest governing body of the corporation itself.

It’s entirely possible that one person could do all of these particular things. To provide a little more detail of the differences between shareholders and board of directors we will provide the more in-depth description below for each of these.

A large company like Google, has shareholders. There could be tens of thousands of them. Each of them can own anywhere from one share to millions of shares in the Google company. To obtain or buy a share, a person must transfer money to a brokerage company who then transacts the purchase of the share or shares.

Things are a little different when we are dealing with a small corporation that is not publicly traded. In this instance, an individual who creates the corporation usually designates how many shares the corporation will have available. the person then determines how many shares they will own and how many shares other owners of the corporation will own.

If, after the business has been operating for a while, the current shareholders decide that they would like to have another owner come into the business, they can’t either create more shares within the company or they can sell some of their shares to the new owner.

As an owner, the shareholder has an opportunity to vote their shares when it comes to several things. First, they can vote their shares to determine who will be a part of the board of directors. They may also use their shares to vote about the direction the corporation should take and the type of business operations it will handle. When a shareholder decides that they no longer want to be part of the business, they can sell their shares either to current shareholders or to someone new.

A board of directors is a little different than shareholders. To be clear, the people who are on the board of directors are usually shareholders in the corporation. As mentioned above, the people who are appointed to the board of directors are voted in by the shareholders. There are usually less members on the board of directors that there are shareholders in the corporation.

The number of board of directors and the functions of jobs that will be performed by the board of directors are usually outlined in the governing document known as the bylaws. This document also usually States how board of directors members are voted in, how they can be voted out, the process for resigning from the board, and Specific Instructions to the board of directors about what it is they are supposed to do.

The bylaws usually provide guidance on how and when the board of directors will meet. It also usually describes the types of business decisions that the board of directors will undertake to complete. Finally, the bylaws usually described how the board of director meetings are noticed, scheduled, and how they are run.

If you own a corporation as the entity for your small business, but you have not set up a board of directors and you aren’t sure how to proceed, we can help. Please contact us for a free 30-minute consultation where we can discuss your situation and answer your questions. We have helped thousands of small business owners create and operate their own businesses and we are confident that we can help you too!

Our team of Idaho business lawyers can help you with any of your business structure or operation needs. Whether you are seeking to create a new business or review a current business, we are available to discuss your options and answer your questions at an initial free 30-minute consultation. Call us toll free at 877-232-6101 or 208-232-6101 for a free consultation. You can also email us directly at lane@racineolson.com or stop by our office at 201 East Center Street, Pocatello, Idaho 83201. We will answer your questions and help you solve your Idaho business problems.