General Corporation

What is a General Corporation?

In many situations, a general corporation, often referred to as the "stock corporation," "open corporation," or "C Corporation," is recommended, especially when there will be more than 30 stockholders in a company, such as a company planning to "go public" or planning a private offering of stock.

A general corporation is allowed a broad spectrum of flexibility. This is thanks to the general corporation laws of Delaware and the legal cases that have set a 200 year consistent pattern of respecting good-faith management decisions.

A general corporation typically has three tiers of power, the Stockholders, the Directors, and the Officers. Each of these groups has different rights and responsibilities within the corporation.

  1. The Stockholders are the owners of the company, but they do not manage the company. Typically, holders of common stock have the right to one vote for each share they own to elect the members of the Board of Directors and to vote on certain other matters of major significance to the company. Any stockholder who holds a majority of the shares of issued stock can control the company. This is sometimes referred to as a "majority shareholder". Majority shareholders take on a heightened responsibility to minority shareholders.

    Minority stockholders (any stockholder without a controlling role in the company) generally have no responsibility to the company. They can usually sell their stock whenever they want and they can assign or give their votes to anyone else they choose.

    Stockholders are rewarded in two ways; (1) the dividends paid on their stock when and if the Board of Directors declares a dividend, and (2) the increase in the value of their stock when the company grows.

  2. The Directors run the company and are responsible for the overall management of the company. They take responsibility for all the major business actions such as the issuance of stock, the election of officers and hiring key management, the establishment of corporate policies, and the setting of their own and key officers' salaries and compensation packages. Directors decide if a dividend will be given to the stockholders, and if so, how much. Directors authorize the issuance of stock in the company, and they may own stock in the company, themselves.

    Directors have certain fiduciary responsibilities to their company. They must be loyal to the company: they must make informed, independent decisions as board members; they must not act in bad-faith, such as self-dealing or fraudulent dealings; and they must act in the best interests of the company and its stockholders.

    Directors may make decisions and take action in either of two ways: in pre-announced meetings with a quorum present, or without a meeting by unanimous written consent of all directors. Directors cannot give or sell their votes to another Director or vote by proxy.

    Ordinarily, directors may be removed and replaced -with or without cause- by the majority vote of the stockholders. This is why a majority stockholder can control the company.

  3. The Officers of the company work for the Board of Directors and handle the day-to-day business of the company. Officers carry out the Board's decisions and implement the Board's policy. Officers are usually the President, Vice President, Secretary, and Treasurer. However, the Board may appoint other officers as they see fit, such as a C.E.O., a C.F.O., a Sales Manager, Operations Manager, or any other title they wish to create.

    Officers may be compensated with stock, or may purchase stock in the company at the discretion of the Board of Directors.

Key Elements of General Corporation: