Removal Mechanisms: How to Get the Wrong Guy Out

In a corporation, there are many issues that emerge, both predictable and not-so-predictable.   Not-so-predictable issues are usually those that a corporation never wishes to have to confront. One issue that may emerge is if an elected director that harms the corporation.  In such a situation, the corporation may wish to have him or her fired from his or her position.  There are several mechanisms whereby a director can be removed from his position.  Different actors have different powers to remove a director from their position.

Shareholders. Shareholders arguably have the most power with regards to removing directors. After all, shareholders vote in the directors, it therefore only makes sense they have the right to remove them.  In order for shareholders to remove a director, they must call for a special shareholder meeting.  At this meeting, shareholders may vote to remove the director.  However, unlike other measures that may be voted on by shareholders, the shareholders must have cause to remove the director.

Board. Other board members do not have as much power to remove directors.  In fact, such a power may be granted only by statute.  This is an uncommon scenario.  Therefore, even if fellow directors are dissatisfied with the performance or actions of a director, they cannot remove him or her absent statute.

Court. Interested parties may attempt to petition a court to have a director removed.  This is also a power only prescribed by statute.  For example, it is allowed in Delaware where many corporations are incorporated.  However, other applicable corporation statutes are divided on the issue.  Shareholders or other directors may attempt to petition a court to have a director removed whenever his or her actions are not in the best interests of the company, and are leading to losses.

In conclusion, there are different ways whereby a director may be removed from his position on a board of directors.  This may be done by shareholders, other directors, or by petitioning a court.  The means by which to remove a director may be prescribed by statute, and differ from state to state.  Consulting with a knowledgeable attorney can help determine how to deal with a director that is harming a situation. Call the Trembly Law Firm at (305) 431-5678 today to schedule your consultation.