The Role of Officers of a Corporation

Appointed by the Board of Directors, the officers of a corporation are responsible for the management and day-to-day operations of the company. Learn more about the specific duties of each role - CEO, Vice President, CFO, Secretary - as well as how these positions are traditionally compensated.

Officers are responsible for the management and day-to-day operations of the corporation. Officers are appointed by the Board of Directors.

Each state's corporation statute will specify the officer positions that must be filled by each corporation. The required officer positions usually include:

• CEO or President. The corporation's CEO or President generally is responsible for the overall day-to-day activities of the corporation (some of which are often delegated to other officers). The CEO typically signs major contracts, stock certificates, and other legal documents, as required. The CEO acts under the direction of the Board. For substantial actions to be taken, the CEO will act on behalf of the corporation by corporate resolution;
• Vice President. This officer may or may not be required by your state's corporation statute. When the position does exist, the Vice President fills in when the CEO is unavailable or when the Board assigns specific duties;
• Treasurer or Chief Financial Officer. The Treasurer is charged with responsibility for the financial matters of the corporation. In a larger corporation, this may consist mainly of oversight; in smaller corporations, this charge will include daily responsibility for financial matters. The Treasurer is responsible for maintaining the financial corporate records and for preparing and presenting financial reports to the Board, officers, and shareholders; and
• Secretary. The Secretary is charged with the maintaining the corporate records of the corporation and preparing minutes of Board and shareholder meetings. The Secretary may also be required to provide certification for banks or other financial institutions, and may be required to provide requested copies of corporate documents.

It is important to remember two significant things about actions taken by officers:

• Executive officers generally have the authority to legally bind the corporation; and
• Officers are generally not personally liable for their acts while acting (lawfully) on behalf of the corporation.

Statutory requirements for officers are generally contained in each state's corporation statute. Check your Secretary of State's Web site for officer requirements. (For a handy, state-by-state listing of all Secretary of State offices, see Secretary of State Information for Incorporating in All States.) The duties and obligations of the officers of your corporation will be contained in your Bylaws.

Compensation of Officers

The Internal Revenue Code allows corporations to claim a "reasonable allowance for salaries or other compensation for personal services actually rendered" as a business expense deduction. Internal Revenue Code 162(a)(1). Compensation includes salary, deferred compensation, stock options, equipment provided (e.g., cars, cell phones, and computers), and health and other insurance. Many states follow federal law on this issue. The "reasonableness" of the compensation will depend upon the specific circumstances.

Factors considered in determining whether compensation is reasonable include:

• the size of the business;
• the corporation's earnings history; and
• salary and compensation paid to other individuals in other corporations performing similar jobs.

If it is determined that an officer is receiving compensation that is unreasonable, the IRS may disallow the compensation as a deduction on the corporation's tax return.

Employment Agreements

High-level employees, including officers, can be offered Employment Agreements. Among other things, an Employment Agreement sets forth the key provisions regarding compensation, duties, and grounds for termination.

Research the various legal business structures available and find the right fit for your new business at AllBusiness.com.

Copyright © 1999 - 2007 AllBusiness.com, Inc. All rights reserved.

Back to Top Email Printer Friendly View

RATE THIS ARTICLE
Rate it:

Not Yet Rated: