Guide to Operating an S-Corporation: Shareholders | Legal Form Articles

The shareholders are the persons or other business entities who actually own the corporation. The corporation ownership is divided into shares of stock in the corporation. Each share may be sold to shareholders who are then issued a stock certificate that represents their ownership of a percentage of the corporation, represented by numbers of shares of stock. Although many different levels and classes of stock ownership may be designated, this discussion deals with only one class of stock: common stock. Each share of stock is, generally, provided one vote in shareholder decisions. Although it is perfectly acceptable to provide for non-voting classes of stock, this discussion will only relate to voting shares of stock.

The ownership of stock certificates of the corporation is recorded in the corporate stock transfer book. This “book” can simply consist of a few pages in the corporate record book with places to note the issuance and transfer of certificates. The corporate record book that will contain all of the corporate records (except the accounting records) can consist of a simple three-ring binder in which the records are organized. It is possible to purchase fancy corporate record books, but they are not a legal requirement.

Ownership of shares of stock in a corporation brings with it both benefits and responsibilities. The benefits stem from the right to a share of ownership in the assets of the corporation. The business profits of the corporation may also be shared with the shareholders in the form of dividends. The decision of the corporation to issue dividends on stock, however, is within the realm of the board of directors. The main responsibility of the shareholders is to elect the directors of the corporation. The shareholders also have the authority to vote on extraordinary business actions of the corporation. These actions are generally limited to decisive activities of the corporation, such as the sale of all of the assets of the corporation, the merger of the corporation, or the dissolution of the corporation. Shareholders, finally, generally have the right to approve any amendments to the Articles of Incorporation. Shareholders’ authority to direct the business only comes from the right to undertake these few actions. Their power must also always be exercised as a group. An individual shareholder has no power to direct the management of the corporation in any way, other than to buy or sell shares of stock.

The election of the directors of the corporation takes place at the annual meeting of the shareholders, although directors can be elected for terms that last for more than one year. At the annual meeting, the president and treasurer of the corporation (both officers of the corporation) will present their annual reports on the activities and financial state of the corporation. The shareholders will then elect (generally by secret ballot majority vote) the directors for the following year. If there are any major business decisions, these may also be addressed. The minutes of this meeting and any shareholders resolutions are typically the only shareholder records to be maintained, other than the stock transfer book.

To purchase one of the forms discussed in this section or to obtain more information about shareholders meetings, shareholders resolutions and other similar forms, please click on the appropriate link below:

Find out more about S-Corporations, and learn about Directors and Officers of an S-Corporation in our Operating an S-Corporation Category.

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