Guide to Operating an S-Corporation: Directors

By | November 15, 2007

As explained in our Shareholders of an S-Corporation article, directors are elected by the shareholders at their annual meetings. Please note, however, that in the forms available on our site, the initial board of directors is specified in the Articles of Incorporation which are prepared and filed with the state. This listing of the directors is to comply with many states’ requirements. The directors who are selected in the articles may then be approved by the shareholders at their first meeting, or may be rejected and new directors elected.The directors of the corporation must act as members of the board of directors. Individual directors, acting alone, have no authority to bind the corporation or, for example, to enter into contracts or leases for the corporation. The directors must act as a board of directors. Most states, however, allow corporations to have only a single director. This sole director must, however, continue to act as a board of directors. Please see our State Law Digest for Corporations for the specific requirements in your state. The board of directors of a corporation has two main responsibilities. The first is to appoint and oversee the officers who will handle the day-to-day actions of actually running the business. The second responsibility is for setting out the corporate policies and making most major decisions on corporate financial and business matters. The policies of the corporation are first contained in the corporate bylaws that will be prepared by the board of directors. Subsequent corporate policies can be outlined in board of directors resolutions, unless they conflict with the bylaws. In such a case, the bylaws must be formally amended by the board of directors, with the consent and approval of the shareholders. Thus, it is the directors who have the actual central authority and responsibility in a corporation.

This differentiation of responsibilities in corporate management is crucial and often difficult to grasp. The shareholders only have the right to elect the directors and vote on major extraordinary business of the corporation (for example, on a merger, complete sale of the corporation, dissolution, or amendments of the Articles of Incorporation). The directors’ role is much wider. They have the power to authorize the corporation to enter into contracts, purchase property, open bank accounts, borrow or loan money, and other such significant actions. The board can also delegate this authority to its officers, but, and this is crucial, it must do so in writing with a specific board of directors resolution. In many corporations, in fact, much of the actual operations are handled by the officers. However, all of the officers’ authority to operate on behalf of the corporation stems directly from the board of directors.

The bulk of the records of the corporation will consist of matters within the province of the board of directors. The directors will hold annual meetings for the purpose of appointing corporate officers and conducting any other business. They may also hold, with proper notice, special meetings to transact other corporate business that may develop from time to time. The minutes of all directors meetings are very important in establishing that a separate corporate entity has been respected by the persons involved with the corporate management. These minutes must be detailed, complete, and up-to-date. The various actions of the directors must be documented in formal resolutions. These resolutions are often required by banks and other businesses with which the corporation does business in order to verify that the corporation has authorized the particular transaction.

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

It should be noted that a few states have chosen to allow the shareholders of a corporation to actively participate in the management of the corporation. Although this may allow for ease of management in certain instances, it will not lessen the requirement for corporate recordkeeping. The forms on our site are all designed for use in traditional three-tiered corporate management with shareholders, directors, and officers.

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