Choosing the Right Corporate Structure
Once an aspiring entrepreneur has begun the process of launching a business, they must decide upon an appropriate corporate structure. Or in other words, they must decide who is in charge, how that is decided, and how many tiers exist in the hierarchy of power. Large companies and organizations often have complex and convoluted ranks of power within the corporate structure. However, the rungs on the corporate ladder are usually quite clear when you are starting your own small business.
Do you own 100% of your company? If yes, chances are, you have chosen to operate as a single-member LLC. Therefore, you are the sole member in a private company. Congratulations! If you would like to be the lone-leader of your entrepreneurial experiment, you may choose to do so. You are not required to establish a board of directors. Of course, you may choose to enact one if you wish. But know that it is not required.
Alternatively, if you would like to delegate responsibilities you have the option to enact a Board of Managers. A Board of Managers differs from a Board of Directors in that the board’s power is not equal to or greater than the owners. It is strongly encouraged that you draw clear and precise bylaws that establish the exact powers of each manager and in which arenas they hold dominion. Though many states require the indication of a sole manager (you) or a management board upon application, Florida does not practice this requirement.
If your business is a multi-member LLC. The same concept applies. However, it is necessary to outline a hierarchy of power among owning members in the company’s bylaws to avoid conflict. Most often, power is divided by percentage of shares owned; however, once again, there is flexibility in the LLC corporate structure.
In its simplest form, a corporate structure may be arranged by roles that resemble those of a high-school club. With the President sitting atop the hierarchy, the vice-president the second in command, and two officials appointed for their expertise: the secretary and the treasurer. When an LLC is formed by a few, intimate members, this is frequently the most efficient way to operate. However, if your LLC is composed of many members, it would be best for it to be outlined by the same corporate structure that is popular among publicly traded corporations. This structure will be outlined below.
Most small businesses in Florida operate as small, privately owned LLCs. However, there are occasions when a small business chooses to incorporate in a publicly traded format (C-Corporation, S-Corporation, Etc.). Incorporating in this manner allows the company to be publicly traded; however, this also increases the difficulty of managing power. Florida requires all incorporations to have a board of directors. This board must be composed of at least two members, but can exist with many more.
In the case of an intimate amount of members, the board may resemble the “high-school club” model outlined above. But in the case of a large congregation of members, these members may be divided into three categories:
- The Chairmen
- Inside Directors
- Outside Directors
The chairmen is leader of the board. He or she is responsible for effective communication between directors as well as the maintenance of relationships between directors.
The Inside Directors are the central braintrust of the organization. They make final decisions on budget and corporate vision.
The Outside Directors have the same responsibilities as the Inside Directors, but they are not direct members of the management team. They exist only to offer unbiased insights and opinions.
The Management team is the second in the binay pillar of command for a company. While the board of directors is responsible for the “big picture” of the company, the Management Team runs the company on a day-to-day basis.
The management team is composed of three members. The Chief Executive Officer (CEO), the Chief Operations Officer (COO), and the Chief Financial Officer (CFO). Each overseeing their corresponding branch of business. The CEO is the top manager, and therefore, responsible for overseeing the wellbeing of the company as a whole. The COO concerns themselves with the marketing, sales, and personnel aspects of the company. Finally, the CFO oversees the financial well-being of the corporation.
It is imperative that an aspiring entrepreneur understand each of these corporate structures, and establishes one that best fits the size, scope, and needs of the company.