16 How is a corporation organized?

A corporation is comprised of three main components: a board of directors, shareholders, and corporate officers. Each of these relate to the other in specific legal ways, which we will discuss in the next question. They also have specific roles within the organization:

1. The board of directors has legal responsibility for the corporation. They are elected by the shareholders
2. The shareholders own equity in the company in the form of stock. They receive dividends when declared and can vote for members of the board of directors. They can also sue on behalf of the corporation if they feel the corporation has been wronged. This is called a “shareholder derivative suit.”
3. The officers are hired by the board. They run the day-to-day operations of the company, to make money for the shareholders. They will develop products, market them, provide services, and so on.

The next Question will consider the duties these parts of the corporation owe each other. One notable absence here is the presence of a specific public purpose. Early corporations in the United States had to serve the public interest in certain ways in order to have the privilege of incorporation. Thus, early U.S. corporations focused on building canals, roads, or banks. Only later, during the mid-nineteenth century, did incorporating for any purpose become generally available.