Removing an Officer from a Corporation

Written by: Andrew Gale - Orange County - Small Business Attorney

Suppose you are the majority shareholder and the officer-president of a CA corporation that is closely held. One of the corporation’s officers, who also owns 20% of the business, is not performing up to par in his official duties, and you have been looking to have him removed from power for a while now. What is the appropriate way to have him removed from his officer position?

How do I remove an officer or a shareholder

from my Corporation?

The president of the corporation has the option to remove a slacking officer from his position. Unlike in a 50-50 split situation, where the president’s only option is dissolution. In a corporation, the board of directions has the power to control the nomination of officers and the removal of officers. Typically, a majority of the board just needs to vote against the slacking officer. Bylaws can be amended or set up to require this type of voting option. Therefore, it is essential to have a business law professional assist you in drafting the bylaws for your corporation since the board must observe every rule contained in the bylaws.

 

In general, the officer/shareholder receives notice of the meeting. The notice informs him that he will be removed from his position. The voting members of the board first list their responsibilities and determine whether or not the officer in question met his duties in conducting his operations. The slacking officer’s conduct is held to the standard of a reasonable officer in the same position. The voters then document how the officer was deficient in his duties. This is a precaution to protect the corporation against any potential wrongful termination claims on the part of the slacking officer. Then the board holds a vote. Even if the slacking officer voted in favor of himself at the removal meeting he would be outnumbered.

 

However, it is important to note that even though the officer has been voted to be removed, his vote and shares are not affected. The minority shareholder still owns his minority share of the company.

 

The officer may choose to resign at any time. If he does so, the resignation takes effect immediately upon delivery to the corporation. The remaining directors then have the opportunity to appoint a new director to fill the vacancy or amend the corporate documents to reduce the size of the board. The corporation then files documents with the California Secretary of State to inform them of the discharged officer’s removal of power.

 

Additionally, it is important to inform anyone the officer worked with that they are no longer working for the corporation to defend against any claims of apparent authority.

 

If you need to talk to a business lawyer about a project such as this, we would be delighted if you would call the Incorporation Attorney at the Law offices of Gale and Vallance (714) 634-4838.