Running a business means more than driving growth and profitability. In many cases, it also requires strict adherence to corporate governance rules and regulatory obligations. Even a minor misstep can lead to disputes between key decision-makers or even lead to costly litigation. Whether you’re managing a closely held company, attempting to resolve disagreements among partners, responding to regulatory scrutiny, or simply looking to ensure that your business legal strategy is meeting its formal legal requirements, you need experienced legal guidance to help you minimize risk and maintain operational stability.
At Demorest Law Firm, PLLC, we counsel business owners and managers on corporate governance best practices and regulatory compliance strategies with the aim of protecting both the company and its leadership. Contact us today for an initial case evaluation with a knowledgeable corporate compliance attorney in Royal Oak, MI, and learn how proactive legal support can safeguard your business and support its continued success.
Corporate governance refers to the rules, procedures, and policies that govern the operation of a company. Various parties may share authority over a company, including directors, officers, managers, and shareholders or equity holders. Certain parties may exercise control over a business’s daily operations, while others have ultimate authority to manage the company. Equity owners may have the right to elect managers or directors.
These parties’ rights and obligations may be established through state laws as well as the business’s governance documents. For example, in Michigan, the Business Corporation Act governs corporate governance for corporations, the Limited Liability Company Act governs governance of LLCs, and the Uniform Partnership Act governs governance in partnerships.
Each type of business entity can have significant differences in its corporate governance. Corporations have a board-centric corporate governance structure, as the board of directors has ultimate authority to manage the company. Directors can appoint officers to handle daily operational issues. A corporation’s shareholders, in turn, elect the directors.
Conversely, the owners (members) of an LLC may control the business, although managers can also elect managers to handle operations. Partnerships, closely held companies, and family-owned businesses may have more unique corporate governance structures.
Many companies rely on outside general counsel Detroit to oversee governance and compliance on an ongoing basis.
Each type of legal entity will have foundational corporate governance documents that work with or supplant state corporate governance laws. For example:
In a corporation, the board of directors serves as the primary corporate governance structure. Under corporate law, the directors’ duties and responsibilities include determining the company’s strategic direction, approving or recommending major policy decisions, and monitoring the company’s financial and operational performance. The directors can also appoint officers, such as CEOs, CFOs, or COOs, to handle daily management matters.
In an LLC or partnership, corporate governance typically occurs through the members or partners who own the business. However, LLC members may choose a manager-managed governance structure for the company. A partnership may also adopt an executive committee when the company has too many partners to make voting on non-major decisions impractical.
Larger companies may minimize the risk of conflicted decision-making by establishing committees to handle major corporate governance decisions, such as compensation, audit, litigation, and nomination committees.
Parties with managerial responsibilities for or authority over a business typically owe fiduciary duties to the company and its owners. Some of the primary fiduciary duties for corporate controllers include:
Corporate law typically examines directors’, officers’, or managers’ governance decisions under the business judgment rule, which affords fiduciaries discretion in decision-making provided they comply with their fiduciary duties when, due to an honest mistake or error in judgment, their decisions result in adverse consequences for the business. However, courts review governance decisions under stricter standards when fiduciaries breach their duty of care or approve a transaction in which they have a conflict of interest.
Directors, officers, managers, and majority equity holders may have fiduciary duties, especially to minority equity holders who may have less control over the company than majority owners and management. An experienced business lawyer can advise you on your specific obligations.
Corporate governance also involves regulatory compliance requirements. For example, legal entities must file annual reports with Michigan’s Corporations Division. Businesses with shareholders or investors may have compliance obligations under state or federal securities laws. Some businesses may have industry-specific regulatory requirements for corporate governance.
Companies may also need to maintain appropriate recordkeeping and documentation of governance decisions, such as validly approved corporate resolutions and board meeting minutes. An attorney can help you understand the specific corporate governance options your company has, both under state corporate law and government or industry regulations.
Closely held companies (that is, companies with a small number of owners) and family businesses often have unique circumstances for corporate governance. For example, business partners in a closely held company may assume overlapping management roles, which can create a lack of a clear governance structure. Closely held companies and family businesses may also adopt informal decision-making practices rather than follow required corporate formalities. These issues can lead to internal disputes among partners or family members, especially in the absence of clear corporate governance procedures, such as voting requirements and deadlock-breaking mechanisms. If you’re an owner or decision-maker in such an entity, an experienced business lawyer can help you navigate the specific corporate governance challenges you might be faced with.
If you own or manage a business with multiple partners or shareholders, you deserve to have experienced legal counsel to guide your business as you address critical governance and compliance issues as they arise. Turn to the Royal Oak corporate lawyers at Demorest Law Firm, PLLC, for help because of:
Are you an owner, executive, or key member of a business in Michigan? If so, contact Demorest Law Firm, PLLC today for a free consultation with an experienced business Royal Oak, MI, business attorney to learn how our firm can help your company meet its corporate governance and regulatory compliance obligations.
