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Removal Of Directors Without Cause

Broc Romanek at The Mentor Blog has been writing about publicly traded companies that reportedly continue charter provisions allowing shareholders to remove directors only for "cause".   Section 303 of the California Corporations Code generally permits removal of any or all of the directors without cause if the removal is "approved by the outstanding shares" (defined in Section 152).  The statute, however, is subject to several conditions intended to address cumulative voting rights; situations in which the holders of a class or series are entitled to elect one or more directors; and classified boards.     

Under the California General Corporation Law, there are only two other ways in which a director may be removed from a board.  First, Section 302 authorizes the board to declare vacant the office of a director declared of unsound mind by an order of the court or convicted of a felony.  Second, Section 304 authorizes the superior court to remove from office any director in case of "fraudulent or dishonest acts or gross abuse of authority or discretion with reference to the corporation".  Shareholders holding at least 10% of the outstanding shares of any class are authorized to bring suit under the statute.  

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About this Author

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

Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...