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CALIFORNIA CORPORATE & SECURITIES LAW

Just How Many Ways Are There To Become A Director?

Lao Tzu (老子) is said to have written that there a many paths to enlightment, but how many paths are there to becoming a director?  To answer the question, let’s look at the definition of “directors” in the California General Corporation Law: “‘Directors’ means natural persons designated in the articles as such or elected by the incorporators and natural persons designated, elected or appointed by any other name or title to act as directors, and their successors.”  Cal. Corp. Code § 164. Based on this definition, there are only two ways that a person may become an initial director of a California corporation:  she may be “appointed” to act as an initial in the articles of incorporation (Cal. Corp. Code § 204(c)) or she may be elected by the incorporator(s) (Cal. Corp. Code § 210). Thereafter, directors must be elected, appointed or designated.  Section 301 requires directors be elected by the shareholders annually (except in the case of listed corporations (as defined) with classified boards pursuant to Section 301.5).  Directors may also be elected by the shareholders to at any time to fill vacancies pursuant to Section 305(b).  Vacancies may also be “filled”  by the board in accordance with Section 305(a) (unless the articles or bylaws provide otherwise and except in the case of a vacancy created by removal (unless the shareholders adopt a bylaw or article provision authorizing the board to do so)).  A court may also “appoint” a provisional director pursuant to Section 308 or 1802.  Finally, the corporation itself may appoint directors in the case of a bankruptcy proceeding pursuant to Section 1400. Section 164 also refers to the designation of natural persons as directors.  However, I’m not aware of any provision of the General Corporation Law that authorizes the “designation” of a person as a director in illud verbum.  The concept of designated directors is, however, found in the Nonprofit Corporation Law, a subject that I’ll cover in a future post. To sum up, I count five ways in which a natural person may become a director (after the election or appointment of initial directors):  election at an annual meeting, election to fill a vacancy, appointment by the board to fill a vacancy, appointment by the court, and by the corporation itself in a bankruptcy proceeding.

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