California Business Control Structures: Comparing Corporations to Partnerships
Sometimes it can be confusing to figure out who is in control of San Diego and California businesses. Part of the confusion results from the fact that businesses can be run in so many different structures such as sole proprietorships, partnerships, corporations, and more. Here is a quick primer comparing corporation and partnership control structures and associated terms.
San Diego Corporate Law: Corporation vs. Partnership
In general, both corporations and partnerships have a similar structure. The owners are ultimately in control, they elect a smaller group to make the major/strategic decisions for the business, the smaller group elects management, and management hires the workers/employees that actually do the day-to-day work. However, the terminology is different and there are important legal differences between the two types of structures. Here are the structures and the terminology:
- Top level: Owners — termed shareholders or stockholders
- Second level: Board of Directors — small group from three to five for small corporations elected by the shareholders; often board members are shareholders, but many board members are NOT shareholders; board makes “big decisions” like the hiring/firing of upper management, setting upper management compensation, declaring bonuses, issuing stock, corporate borrowing, and similar
- Third level: Upper management such as the Chief Executive Officer, Chief Financial Officer, etc.; selected and chosen by the board of directors; often the CEO is a member of the board, CAN be a shareholder, but often the CEO and other upper management employees are not owners; with smaller businesses, the board might limit the authority of the CEO such as limiting his/her authority to incur expenses more than $10,000 or similar; for expenses exceeding that amount, the CEO would need board approval
- Lowest level: regular employees — hired by upper management to do the day-to-day work; generally not owners
- Top level: Owners — in this case, called the partners; each partner has a percentage share of ownership
- Second level: Management committee — with small partnerships (three to five), all the partners form the management committee; with larger partnerships, the partners elect a small group (three to five or more); like board of directors, the management committee makes the “big decisions” the most important of which are usually related to partnership draws, bonuses and other compensation paid to the partners
- Third level: upper management — often will be one or more of the partners and will be termed the Senior Partner or Executive Partner or similar; if not a partner, upper management will have no ownership in the business
- Lowest level: regular employees; almost never owners; no authority to legally bind partnership
Contact San Diego Corporate Law Today
If you would like more information about corporations and/or general partnerships, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard has been named a “Rising Star” for 2016 by SuperLawyers.com. Mr. Leonard has the experience to help you form a corporation (or any other corporate entity) or set up your partnership, including drafting a partnership agreement suited to the specific and unique needs of your business. Every business needs a good business attorney like Mr. Leonard to review, draft, and assist in executing business contracts and with other business-related matters. Mr. Leonard can be reached at (858) 483-9200 or via email.