Basic Structure of a Business Corporation

Every week, I’ve encountered questions and confusions from many soon-to-be entrepreneurs, and sometimes even entrepreneurs who are running real companies, about power struggles among board of directors, officers and shareholders.

In general, board of directors exercise all the corporation powers except those reserved to the shareholders by statutes, articles of organization or bylaws. It means, business affairs of the corporation shall be managed under the direction of the board. Note the word “direction”. Board does not engage in day to day operation of the corporation, but only “directs”. The board members are elected by the shareholders. The number shall be fixed by the shareholders at the annual meeting. In Massachusetts, the number shall be at least one. If the corporation has more than one shareholder, the number of directors shall not be less than three.

The most basic structure of the officer team has a President, a Treasurer and a Clerk. President is in charge of the daily operation of the business. One would imagine a President has pretty broad authorities, but amazingly, his power is very limited and in most instances only has the authority to enter into routine transactions, unless he is also a Chief Executive Officer (CEO). Treasurer receives and disburses corporate funds. Clerk, also referred as Secretary, takes minutes of board and shareholder meetings and maintains corporate records and seal. All the officers are elected and removed by the board and fulfill their duties at the direction of the board. The scope of their authority shall be enumerated in the bylaws.

Shareholders are the owners of the corporation. They have the right to elect and remove board members, which is a right sometimes shared with the board itself. Shareholders have the right to inspect and copy corporate records. Corporate records include articles of organization, bylaws, resolutions adopted by the board, minutes of shareholder meetings, records of actions taken by shareholders without meetings, financial statements, corporate communications to shareholders, and names and addresses of directors and officers.

The biggest source of contention is who has the right to do what, and what quorum and how many votes are needed to elect or remove a board member or officer, and to determine a corporate action or transaction. Well drafted articles of organization and bylaws shall address all these issues in accordance with the statutes, thus to minimize the likelihood of future disputes.

Wage and Hour Exemption in Mass

By Mass law, employers have to pay employees overtime pay, with some exceptions. Exemptions applies only to highly skilled employees who have achieved a level of proficiency in the theoretical and practical application of a body of highly specialized knowledge, such as, computer and system analysis, programming, and software engineering. It is usually a fact specific task to define what types of jobs within this parameter has "achieved certain level of proficiency", mostly those employees who do not need close supervision and can work independently.

To avoid overtime claims in software industry and emerging businesses that may be able to take advantage of a special minimum wage and overtime exemption for workers in these areas. The employees must be salaried or hourly, with a regular rate of a minimum wage set by the law, and must have a primary duty consisting of either or any combination of:

Application of system analysis techniques and procedures.

Design, development, documentation, analysis, creation, testing, or modification of computer systems or programs; or

Design, documentation, testing, creation, or modification of computer programs related to machine operating systems.

Can Wrongful Termination Claim be based on Voluntary Quit?

My phone rang early afternoon on Tuesday. A lady asked if I have a few minutes to listen to her story and determine if she has a valid wrongful termination claim. It turned out that she quit instead of being discharged by her employer. At the first glance, it doesn't seem to fit in the parameters of a "wrongful termination". However, it is noted that her decision to quit may have been a "constructive discharge" because her salary would be reduced to half and position would change from a manager supervising thirty plus people to one of those she oversaw.

Constructive discharge is a type of termination that is "quit" on surface but "discharge" in nature. It usually occurs when employer makes significant changes of employee's job responsibilities, demotes employee to a much lower position, or cut her compensation to a point of intolerance based on unlawful grounds, such as, race, religion, color, disability, nationality, age, etc. Under these circumstances, nobody would have been able to continue the job because of the humiliation and indignity she would suffer as a result of it, voluntary quit is but the only choice she has.

Interestingly, early next Morning, she called back telling me that her employer offered her job back last night. The ending was not too bad. I gave her something to take away - when you encounter a situation like this, don't quit on spot, calm down and give yourself just a few hours to think it through and perhaps consult with an attorney before making a wise decision.