Corp 101: The Basics of Corporate Structure

Recently, there's been a lot of talk about

the role of corporations in our economy.

But no one takes the time to explain

exactly how they work or

the benefits they provide.

So, let's give it a try.

Corporations

are designed to make a profit while

delivering value to their shareholders,

and by doing so,

they drive economic growth and all

the good things that come with it.

And as corporations grow,

many individuals invest directly or

indirectly through mutual,

pension, and retirement plans.

These stockholders provide seed money or

capital for corporations to grow,

and in doing so,

they create economic growth and reward

investors with the opportunity to profit.

In this video, we'll start with the basics

of corporate structure,

but be sure to check out later episodes

where we'll dive into some

of the specifics.

Now, when you think about how a company

runs, your first instinct may be

to compare it to something like a school

board or a homeowners association,

or even Congress, where decisions

are made by a simple majority vote.

But corporations are more complex.

In fact, there are three principal

groups that govern corporations.

They are the management,

board of directors, and shareholders.

Now, the relationship and responsibilities

of these three groups are defined

primarily by state law in a corporation's

own charter and bylaws.

That means each corporation is a little

different, but all have

government oversight.

The management is made up of all those

people with acronyms like CEO and CFO.

Their responsibility is running

the day-to-day operations of the company.

Most importantly, management

identifies and manages corporate risks.

Now,

the board of directors' responsibility is

overseeing the strategy and performance

of these guys and gals, the management.

Within the board are various committees

designed to tackle specific issues such as

audits, compensation,

or corporate governance.

Committees recommend policy for approval

by the entire board,

but we'll talk about this more in future

episodes when we explain

the inner workings of boards.

The board of directors' main

responsibility is to make decisions

in the best interest of the corporation's

shareholders, the people

who voluntarily invest by buying stock.

That's why they are commonly

referred to as owners.

Shareholders' piece of power is

the right to elect these directors.

They also approve

mergers and acquisitions.

And that's the structure

of the corporation.

Employing millions of people in all

sectors of the economy,

providing health insurance and retirement

plans, providing investment opportunities

for all generations,

and providing innovative products

and services that affect

every aspect of daily life.

Be sure to check back for future episodes

in this series, where we will continue

to explore how corporations work

and their role within the U.S. Economy.

See you soon.