FOR LAWYERS

How to Understand Corporate Structure

By
Lia Kopin-Green
/
January 18, 2023

Decades ago, most companies in the United States were small, simple, and family-owned. Today, however, the country is full of large, international and publicly-traded companies with hundreds to thousands of employees. This can make it quite difficult to keep track of where each individual stands on the corporate ladder.

Corporate structure, also known as corporate governance, refers to the way in which a company is organized. This concept helps us understand how a corporation operates and manages its business. Depending on the specific circumstances of the corporation, organizations can be structured in a number of different ways. 

In this article, we’ll review some of the most important elements in corporate structure and governance. 

Importance of Corporate Structure and Governance

Corporate structure and governance are critical components when it comes to understanding any type of organization. Setting a well-defined structure helps provide clarity on who is responsible for what, which ensures that tasks are completed both efficiently and effectively. As a result, corporations can expand and evolve, transforming small family-run businesses into globally traded enterprises.

Moreover, proper corporate governance can enhance the reputation of a company and increase the confidence of shareholders. By ensuring that the goals and objectives of a company are in line with those of its stakeholders, integrity and transparency within the organization can be enhanced. This can help mitigate any risks that affect the company, which is essential for a corporation’s long-term sustainability.

Types of Corporate Roles

In the United States, there are several types of corporate roles that are crucial for the functioning of a company. Individuals who are part of a corporation generally fall into one of the following categories:

  • Board of Directors: The board of directors is responsible for controlling the business and protecting the shareholders’ interests. Board members are typically elected by shareholders, according to the company’s bylaws. In order to avoid tied votes, the board of directors usually has an odd number of members. 
  • Officers: Corporate officers are chosen by the board of directors. These individuals manage the day-to-day operations of a company. The main types of officers include the President or CEO, the Vice President of Chief Operations Officer (COO), the Treasurer or Chief Financial Officer (CFO) and the secretary. 
  • Shareholders: Shareholders own stock in the company and have a strong level of authority when it comes to making decisions in a corporation. Those who own more shares in a company have more interest and influence in a company’s decisions. 
  • Employees: All other members of the corporation can be referred to as employees. In the United States, corporations are not legally required to have employees. Nonetheless, corporations must have shareholders, officers and directors.

Types of Corporate Structure

Now that you have a better understanding of the roles and responsibilities within a corporation, it's time to examine the various ways in which these roles can be organized. There are several types of organizational corporate structures, each with their own advantages and disadvantages. A few of the most common types include:

  • Hierarchical Structure: Most corporations in the United States use a hierarchical structure. According to this model, there is a clear chain of command and labor within a corporation. It includes several levels of management such as top management which includes the CEO, middle management such as department managers, and lower-level management such as supervisors. 
  • Functional Structure: In a functional corporate structure, the company is split into various departments based on specialized functions such as sales, marketing and production. In other words, employees may be grouped into these departments based on similarity in their skill sets and responsibilities. Common examples of functional departments include Human Resources (HR) Departments and Finance Departments.
  • Divisional Structure: Divisional structure organizes a company into semi-autonomous units or divisions. Each department in a divisional structure has its own management and resources, and is typically responsible for its own performance. For instance, a retail company may adopt a divisional structure with divisions set according to specific products or markets. The company may have a clothing division, a home goods division and a food division.
  • Matrix Structure: Matrix structures combine elements of both functional structures and divisional structures. This method balances department autonomy and interdepartmental interaction to maximize productivity and innovation within a corporation. Matrix structures, however, have several drawbacks, since they may lead to higher costs and disputes between various divisions in the company.

Bottom Line

Ultimately, when starting a new company or business venture, it is crucial to have a comprehensive understanding of corporate structure and governance. Unfortunately, without the assistance of an experienced attorney, these concepts can be quite difficult to grasp. Get tailored support for all your business needs from one of our skilled business lawyers today. Our team is eager to help bring your business aspirations to fruition.

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