Key Takeaways

  • S corporations are legally required to have a board of directors that oversees key business affairs.
  • Shareholders typically elect directors during annual meetings, and their powers and duties are defined by corporate bylaws and state laws.
  • S corp board of directors requirements vary by state but generally include holding regular meetings, maintaining meeting minutes, and ensuring compliance with fiduciary duties.
  • Directors owe duties of care, loyalty, and good faith, and may face personal liability if they breach these duties.
  • Clear bylaws, conflict of interest policies, and director indemnification provisions help maintain effective governance.
  • The structure and size of the board should be tailored to fit the business's needs and growth stage.
  • Directors must often approve major corporate decisions, including amending bylaws or authorizing stock issuance.

An S corp board of directors is a group of people who run the corporation. It's one of the three parts of a corporation's structure, which also includes directors and shareholders. It is sometimes referred to as a board of trustees, executive board, or board of governors. 

Individual directors do not have the authority to sign contracts or make any major decisions for the company. They must act as members of the board, which functions as a group. The articles of incorporation, as well as the bylaws, identify the board members/directors. 

How Directors Are Selected

The person who forms the corporation, called the incorporator, may select them. This person may also be the president/CEO of the company. Later on, shareholders elect directors at annual meetings.

Members of the board of directors should be chosen for their ability to provide guidance and improve the company, not because of politics or friendship. Board members are usually volunteers. Paying them could be considered a conflict of interest, but it is all right to pay them for travel or other expenses involved in attending board meetings. The business can deduct these payments on their business tax forms.

Legal Requirements and State Law Considerations

While the election of board members is typically handled by shareholders, S corp board of directors requirements are also shaped by specific state statutes. Most states require at least one director, but larger corporations may appoint several to reflect diverse expertise. It is critical to consult your state’s corporate code to determine:

  • The minimum number of directors required
  • Whether a director must reside in the state
  • Whether directors must also be shareholders or officers
  • Quorum requirements for decision-making

Failing to meet these requirements can compromise the S corporation’s good standing.

Board Members' Duties

The board of directors' duties is laid out in the company's bylaws and specified in the state laws where the business is formed. These include:

  • Taking care of the business' financial and legal needs, including loans and purchases of real estate
  • Establishing the business' overall vision and mission and setting policies for employees and officers
  • Setting corporate policies
  • Approving the decision to issue stock, authorizing dividends, and setting salaries for executive employees
  • Making necessary amendments to the bylaws or articles of incorporation of the company
  • Always acting in the best interests of the corporation

In some states, the board of directors must meet in person. Most states, however, allow directors to meet over the phone and sign consent resolutions for certain matters instead of attending regular meetings.

Fiduciary Responsibilities and Legal Liabilities

Directors owe fiduciary duties to the corporation and its shareholders. These include:

  • Duty of Care: Directors must make informed decisions, exercise reasonable prudence, and review all relevant information before voting.
  • Duty of Loyalty: They must prioritize the corporation’s interests over personal gain and disclose any conflicts of interest.
  • Duty of Good Faith: Directors must act honestly and avoid fraudulent or deceptive conduct.

Violations of these duties can lead to personal liability, including lawsuits from shareholders or regulatory actions. However, corporations often include indemnification clauses in their bylaws or purchase directors and officers (D&O) insurance to protect board members from personal financial exposure in certain circumstances.

Board of Directors Officers

A typical board of directors consists of the following officers:

  • Board chairperson
  • Vice-chair
  • Secretary
  • Treasurer

The exact duties belonging to these individuals are specified in the company's bylaws.

Tailoring Board Composition to Business Needs

While state law and bylaws often dictate the minimum roles (e.g., chairperson, secretary, treasurer), businesses should consider appointing additional directors or officers based on specific operational needs or growth phases. For example:

  • A startup may benefit from a lean board with agile decision-making.
  • A mature company might require a more diverse board with legal, financial, and industry expertise.

Consider forming committees—such as audit, compensation, or governance committees—to manage specialized functions more efficiently.

Inside a Typical Board Meeting

A standard format is used for board meetings. The most popular resource for establishing this format is Robert's Rules of Order. The typical agenda is as follows:

  • Review and approval of the minutes from the last meeting
  • Review and approval of the treasurer's report
  • Presentation of committee reports
  • Discussion of old business; any voting that takes place is recorded in the meeting minutes
  • Discussion of new business; any voting that takes place is recorded in the meeting minutes
  • Adjournment

The board secretary takes the meeting minutes, following a specific format. 

Best Practices for Conducting Effective Meetings

To comply with s corp board of directors requirements and promote productive governance, corporations should adopt best practices for board meetings, such as:

  • Circulating an agenda and meeting materials in advance
  • Recording formal resolutions for major decisions
  • Reviewing past action items and assigning new tasks
  • Encouraging open dialogue while adhering to time limits
  • Holding executive sessions without officers when needed

Meeting frequency should align with the company’s scale—some boards meet quarterly, while others convene monthly.

Corporate Annual Meetings

A corporation is required to hold an annual meeting of its shareholders. This is run by the corporate board, and it typically issues an annual report that covers the current state of the corporation. The agenda must be written according to specific requirements that describe what to include.

Annual meetings are used for appointing corporate officers and taking care of any other business that is required. Special meetings may also be held to conduct other business needs that may arise.

All the minutes from the board of directors' meetings must be available at the annual meeting and must be up-to-date, complete, and appropriately detailed. Also, formal resolutions must document all the directors' actions. Outside businesses that are involved with the company often require these resolutions to verify that the transactions have been properly authorized.

In some states, shareholders can participate in the corporations' management process. This could make management easier in many cases, but the need for corporate record-keeping still exists.

Documentation and Transparency Standards

Maintaining robust documentation is central to meeting s corp board of directors requirements. Corporations should ensure:

  • Board and shareholder meeting minutes are securely stored
  • Corporate records include signed resolutions, bylaws, and amendments
  • Directors sign conflict of interest disclosures annually
  • Important decisions (e.g., mergers, stock issuance, executive changes) are well documented

These records not only support compliance but also serve as essential references in the event of legal disputes or audits.

Requirements for Corporate Boards

Rules for a board of directors may be different depending on the state. All C and S corporations must have a board of directors. The number of directors depends on the business' size and is usually noted in the bylaws and articles of incorporation.

No matter what state the business is formed in, all corporations must have a board of directors that is elected by shareholders. It must hold an annual meeting every year and keep minutes of each meeting documenting everything that was discussed and any actions taken by the board. 

LLCs and sole proprietorships do not need to have a board of directors but may have one if they desire.

Forming Your Board: Initial Steps and Practical Tips

When first forming your S corporation, you'll need to take deliberate steps to establish your board:

  1. Name Initial Directors: These are typically listed in the articles of incorporation and later ratified by shareholders.
  2. Adopt Corporate Bylaws: Bylaws set forth how directors are elected, removed, compensated, and what constitutes a quorum.
  3. Hold an Organizational Meeting: At this meeting, initial actions like adopting bylaws, appointing officers, and issuing stock are finalized.
  4. File Initial Reports: Some states require filing an initial board of directors list shortly after incorporation.

To ensure full compliance with s corp board of directors requirements, consult a business attorney familiar with your state’s corporate law. You can find experienced professionals on UpCounsel.

Frequently Asked Questions

1. Does an S corporation need a board of directors? Yes. All S corporations are legally required to have a board of directors that governs major corporate decisions and represents shareholder interests.

2. How many directors are required for an S corp? Most states require at least one director, but your corporate bylaws or articles of incorporation may require more based on business size or structure.

3. What are the main responsibilities of the board of directors? They oversee financial decisions, set company policy, hire executive leadership, and ensure the corporation complies with legal obligations.

4. Can a shareholder also be a director in an S corp? Yes. It's common for shareholders to serve as directors, especially in closely held or small corporations.

5. Do directors of an S corp have legal liability? They can be held personally liable if they breach fiduciary duties. However, indemnification provisions and D&O insurance can mitigate risk.

If you need more information or help with an S corporation board of directors, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.