Summary of director's, officer's and shareholder's authority and limitations thereof
Puerto Rico
Corporations
Directors
The board of directors (the board) controls the business of the corporation, in the manner and to the extent set forth in the articles of incorporation and bylaws. Some basic board functions include selecting officers, controlling executive compensation, delegating administrative authority to a committee, determining dividend payments and supervising the welfare of the whole enterprise. The board possesses this authority without consulting with or obtaining the consent of the shareholders. However, the board’s powers extend only to the ordinary and regular course of business of the corporation. The board does not have unlimited power to deal with property and affairs of a corporation; instead, their powers are conferred so that the corporation's business can be transacted for the profit of the shareholders. Similarly, the directors' authority does not extend to changes of a fundamental character in the corporation.
Officers
Officers are responsible for the management and day-to-day operations of a corporation and are appointed by the board. Generally, the officers of a corporation are enumerated in its bylaws and include a president, vice-president, secretary, treasurer and sometimes others. The president is responsible for the overall day-to-day activities of the corporation (some of which are often delegated to other officers).
The president signs major contracts, stock certificates and other legal documents, as required. The president acts under the direction of the board.
The treasurer is responsible for the financial matters of the corporation. The treasurer is the only officer, absent express contrary provision in the bylaws or charter documents, to receive and keep funds of the corporation and is bound to disburse the funds only under the orders of the board or other officers in charge of the corporate business.
The secretary is charged with maintaining the corporate records of the corporation and preparing minutes of board and shareholder meetings. The secretary may also be required to provide certification for banks or other financial institutions and may also be required to provide requested copies of corporate documents.
Shareholders
As a general rule, shareholders are not permitted to act on behalf of the corporation. All the capacity of a corporation is vested in its board, and all its authority is supposed to be exercised by the board. It is the function of the board to manage and conduct the business of the corporation through the corporation's officers. The shareholders (ie, those who are not also directors or officers of the corporation) have no authority to act for the corporation. They are limited to acting in an advisory capacity only, to electing directors or to approving or disapproving such measures as are submitted to them by the board. The mere ownership of a majority of shares does not give a particular shareholder authority to act for the corporation.
The powers of management vesting in the shareholders as a body are few. They control the affairs of the corporation, while it exists and does business, through the directors appointed by them, which in turn manage the corporation through officers appointed by them. Typically, they have the right and power to hold meetings, elect directors, remove directors and increase or decrease the capital stock.
Limited Liability Companies
Members, much like shareholders, have no authority to act for the LLC, unless the operating agreement so establishes. They control the affairs of the LLC, while it exists and does business, through the managers appointed by them. The powers and authority of the members are established in the operating agreement.
If the operating agreement allows for directors and officers, their authority and limitations are generally established in the LLC's operating agreement.