Removing a Board Member
Shareholders are the owners of a corporate entity and hold rights over how the company is managed. If they detect wrongdoing, corruption, or fraud they can ask the board of directors to correct the situation. If the board fails to do so, they can take the issue to court through a shareholder derivative lawsuit.
But what are shareholder rights when a board member is failing to live up to their responsibilities or has done something unethical or even perhaps illegal? Can they get the director removed and replaced, and if so, how?
Generally speaking, the articles of incorporation and the corporation’s bylaws should address the election and removal of directors. Absent that, the California Corporations Code takes priority, which maintains that a board member can be removed for cause or even for no cause.
Cause means a felony conviction, a court determination of unsound mind, a failure to attend board meetings as required by the by-laws, or a failure to meet the qualifications of directors. The board member can also be removed without cause by a vote of the “members” or the other directors.
If you are a shareholder, officer, or board member of a corporation in San Francisco, California, and need to remove and replace a director, or if you are a board member being challenged in your directorship, contact the Law Offices of David H. Schwartz, INC.
Business litigation Attorney David H. Schwartz will examine the circumstances and advise you of your legal options going forward. His firm represents clients not only in the Greater San Francisco Bay Area but also in San Jose, Santa Clara, San Mateo, and throughout Alameda County, California.
How to Remove a Board Member
Removing a board member – or attempting to do so – is fairly common in homeowners’ associations (HOAs), which are governed by the same California Corporations Code as business enterprises. The process for removal should be addressed in the articles of association/incorporation and/or in the bylaws, but if not, the California Corporate Code takes precedence.
The California Corporations Code mandates that, absent provisions in an entity’s organizing documents or bylaws, a board member’s term is limited to one year. In many corporations, the bylaws determine that directors will be elected at each annual shareholders’ meeting and will hold office until the next annual shareholder meeting and until their successors are elected. However, they can be removed from the board before that time.
Otherwise, if you as a shareholder or owner of a dwelling in a homeowners’ association decide it is time to remove a director who is failing to live up to their responsibilities – or worse, has done something unethical or illegal – you can petition the board for the removal of that member.
California Corporations Code Section 12362 allows for the removal of board members without cause, but it requires a vote by the members of the corporation. Removal without cause does not require a statement as to why the director should be removed.
If the corporation consists of fewer than 50 members, then a majority vote can remove a member. With 40 members, for instance, 21 votes can remove. If the corporation consists of more than 50 members, then the vote requirement is a majority of the members present when a quorum of the members has been reached.
With more than 50 members, matters can get complicated if “cumulative voting” is allowed. Cumulative voting allows a member to cast more than one vote for one candidate. Basically, this means that if the member facing removal receives enough “no removal” votes to be elected to the board, then the removal effort fails.
Seek Advice From a Skilled Litigator
Removing a board member can be a complicated process. If you are a shareholder, a group of shareholders, or even a homeowner subject to an HOA, and need to replace a director on a board, contact the Law Offices of David H. Schwartz, INC. The firm proudly serves clients throughout the Greater San Francisco Bay Area and surrounding communities, including Alameda County, California.
An attorney will listen to your rationale for removing a director and advise you of your legal option, and represent you in any court actions that may ensue.