I have a business partnership that is becoming an S-corp, does title matter or will control be split as we plan to both own 50%.

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I have a business partnership that is becoming an S-corp, does title matter or will control be split as we plan to both own 50%.

My business partner is more of the leader and has asked me if he can have the title of President and CEO. I will then take the title of Vice President and CFO. I have no problem giving him the title and we still plan to split the S corp 50/50. Will my lower title affect control of the corp?

Asked on June 20, 2011 under Business Law, California

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

Titles do not, in and of themselves, have anything to do with the control of a company--that is, someone could name himself "VP, Business Development" of his company and still be the controlling executive (I know someone who has done this; he believes that this title makes him more "accessible" to potential customers or clients than calling himself "President").

What matters is the authority each person has or is given. Typically, the controlling shareholders (or in a larger company, the board of directors) will determine which job has which authority, and obviously, they usually grant the more power to the President/CEO. However, again, what matters is what authority is conveyed. If you and your partner each have 50% of the shares, you are equal in power in regards to the decisions made by owners--which is not (see below) necessarily the bulk of operational decisions. However, to make it clear that you have equal authority--since to outsiders, including, if there  is a dispute, a judge, it would normally look like and be assumed that the president has more authority--you and he should either define your respective authority in the documents governing the company and/or have an agreement between the two of you delineating authority; that will make it clear that the two of you are equal.

Note: you need to distinguish between control as a owner, which you would have one-half of but which does *not* tend to affect day to day decisions, and the day-to-day management, which is based upon the grant or devolution of power to each executive position. As 50-50 owners, the two of you would have equal power automatically in major decisions, like when to sell the company; but typically, the president/ceo would have more authority than the VP/CFO  over day-to-day operations, unless you define it otherwise.

You should also think about what happens if the two of you, as 50-50 owners, disagree on a critical issue--that could result in corporate paralysis.  You wish to in advance specificy some mechanism to break "ties" or else have one person buy out the other.


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