Who’s in Charge Here?

In Corporate Law by Joe Pull1 Comment

In a one-person business,[1] there is no confusion about who calls the shots.  There is also no chance of disagreement concerning the operation of the business’s affairs. Confusion and disagreement can arise, however, when there is more than one person involved. Such confusion is unnecessary. Minnesota, like other states, has well-established rules determining who makes decisions on behalf of corporations. These rules define three different decision-making roles: the shareholder, the director, and the officer. Though the same individual can hold two or even three of the roles at the same time, each role has distinct powers. Blurring or confusing the roles can give rise to conflict and even litigation, and remaining mindful of the differences between the roles can help prevent disputes. Shareholder.  A shareholder is an owner of the corporation. The basic rights of a shareholder are (1) to receive money from the corporation in the form of dividends, if and when the corporation chooses to distribute profits; and (2) to vote in elections to select the corporation’s directors.[2] While shareholders may have the right to approve certain important corporate decisions, as a general matter a shareholder does not have the right to make decisions concerning the corporation’s affairs. Director.  Rather, it is the board of directors that controls the corporation’s business and affairs.[3] The directors are elected by the shareholders, thereby giving the shareholders indirect control of the corporation, but direct control lies in the hands of the directors without the participation of the shareholders. “Minnesota law puts the boards of directors, not courts or shareholders, in charge of governing corporate affairs.”[4]  (There is an exception that allows shareholders by unanimous affirmative vote to take action in the same way as the board of directors may act,[5] but this exception quickly becomes difficult to use as the number of shareholders increases beyond two or three.) Officer.  …