Terminology for Corporations and LLCs

Most people know about shareholders, directors and officers: the functions in a corporation.

Shareholders are the owners; directors make major decisions about the corporation; and the officers carry out the day-to-day operations. Think of a big publicly traded company. You buy shares of the Coca-Cola Corporation or Apple because you will make money from owning the shares – the companies pay you dividends.

As a shareholder, your primary responsibility is to elect the board of directors and approve huge changes to the structure of the company or its capital (mergers, stock splits, etc). The board of directors makes the broad policy for the corporation: will we offer health insurance for free or make employees pay a percentage? Will we change the formula for Coke? Will we open a new market in Antarctica this year? The directors then delegate to the officers the carrying out of all those decisions.

When you sign a document on behalf of the corporation, you would sign in your capacity as officer (president, secretary, treasurer, for example).

In an LLC, the owners are called members, and the company is run by its managers. It can name officers, and take the job duties from the corporate law statutes. The manager signs on behalf of the LLC. If your LLC has named officers, those officers would sign instead of the manager.

Things sometimes get confusing with the LLC when you hire employees and want to call that position “manager”. They are often not the “manager” of the LLC akin to the director of a corporation – they are the manager of a specific function of the company only. Think of them as manager of finance or manager of operations or manager of HR, and not the manager of the LLC who makes the decisions on the direction and actions of the company.