What you need to know about board of directors and shareholders in your company

On Behalf of | Mar 19, 2021 | Business Law |

Many Pennsylvania owners incorporate their business as either a partnership or limited liability company when first getting it off the ground. They may later shift to another corporate structure down the road that allows them to have a board of directors and shareholders.

You may want to understand what these individuals’ roles are if you plan to introduce them into the mix. 

What are shareholders?

Shareholders are merely individuals who contribute financially to the creation and growth of a corporation. They generally retain voting rights on the company’s board of directors in exchange for their financial investment. 

Whats rights do shareholders enjoy?

A corporation’s bylaws generally spell out the rights and responsibilities shareholders have. This corporate charter may outline how a shareholder has a right to vote to oust a board member who isn’t performing their job well or elect a new one. 

Shareholders may also find themselves needing to vote on other issues, including:

  • Removing limits on corporate involvement
  • Initiatives aimed at reducing or increasing board of directors’ seats
  • Adopting new shares ownership rules
  • The sales of corporate assets
  • Confirming bylaws

There are also some instances in which bylaws also authorize shareholders to manage a corporation. In these instances, the corporate charter may spell out how it allows shareholders to remove any leadership not performing up to par. 

What are the fiduciary duties of a board of directors?

Every person on a board of directors has a fiduciary duty only to make choices in a company’s best interests. They should eliminate any potential conflicts of interest that may impact their ability to do this. 

It’s not uncommon for minor factions of shareholders to align with one another around a common cause. A corporation’s board of directors shouldn’t allow that to affect them in deciding the most reasonable choice for the company they serve. Directors may also have to sit out voting on contracts that others may see as self-serving if they were to turn out a certain way. If a board member with ulterior motives were to vote in such an instance, others could allege self-serving, thus nullifying the contract. 

Do you want to learn more about corporate structure?

You must weigh multiple factors when deciding what corporate structure is right for your Murrysville business. An attorney can help you understand whether setting up an entity that allows you to have directors and shareholders is right for you and, if not, what Pennsylvania business structure is.