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A House Divided Without Provision For A Provisional Director?

This week, I have been writing about Section 308 of the California Corporations Code.  Subdivision (b) of the statute authorizes the Superior Court to appoint one or more provisional directors when "the shareholders of a corporation are deadlocked so that they cannot elect the directors to be elected at an annual meeting of shareholders".  Typically this will occur when there are two shareholders holding an equal number of shares or two factions of shareholders, each holding one-half of the shares.  It is possible, however, that one shareholder faction will hold significantly more shares than the opposing faction and yet the shareholders will be unable to elect directors at the corporation's annual meeting.  I explained how this can happen in An Unexpected Impasse.  Section 308(b), however, does not appear to be available to remedy the problem because the statute requires that the petition for a provisional director must be made by "a shareholder or shareholders holding 50 percent of the voting power".  Relief may be available under Section 308(a) if there is a deadlock on board such that either (i) the corporation's business can no longer be conducted to advantage; or (ii) there is danger that its property and business will be impaired or lost.  As noted in Monday's post, relief under Subdivision (a) may be obtained by a director or by the holders of not less than 33 1/3 percent of the "voting power" as defined in Section 194.5.  

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...