As a business owner in North Carolina, one of the first decisions you will be faced with is what type of entity structure you would like your business to operate as. If you decide that a corporation is the best entity structure for your business, it is likely that you will come across the term “board of directors” at some point. However, before diving into the structure and selection process of a board of directors, it is important first to understand the meaning, purpose, and potential functions of a corporate board of directors.
What is a Board of Directors?
In North Carolina, it is common for a corporation to have a board of directors, that is, one or more individuals who serve the corporation and its shareholders. Directors can have many duties, such as overseeing corporate activities, providing guidance and organizational leadership, acting in a fiduciary or legal advisory capacity, and implementing corporate policies, all to ensure that the corporation stays on track and reaches its goals. Most importantly, the board protects the interests of the shareholders.
How Many Directors Should I Have on My Board?
The number of directors on your board will likely depend on what is specified in the corporation’s bylaws, which set forth the rules for how the corporation will operate, or its articles of incorporation, which are filed with the North Carolina Secretary of State. (Read more about corporate bylaws, here). Since there are many positions available on the board, it is common to have several individuals serve as directors.
Selection and Term
Generally, directors are elected to the board by the shareholders at the annual shareholders’ meeting, and their terms will expire at the following annual meeting. Directors that serve on the board at the time the corporation is created are referred to as “initial directors,” and may continue to serve their term or may be replaced. The election of all directors after the initial directors will depend on how many classes of shares there are, and which members are entitled to vote. Further, in certain circumstances, directors can be appointed or designated.
As stated above, directors serve only one-year terms; thus, to prevent the term expiration of all directors on the board at the same time, the shareholders will often create several separate classes of directors. This is referred to as “staggering,” which results in only one class of directors’ terms expiring annually and functions to ensure continuity of management. However, it is important to understand that if you intend to stagger your board, the option to do so must first be set forth either in the articles of incorporation or the corporate bylaws.
Dye Culik PC is a Charlotte business and franchise law firm representing clients in North Carolina and South Carolina. We advise and assist businesses on many areas including operating agreements, shareholder selection and agreement, and drafting corporate bylaws. Connect with us for a consultation.