Website Heading

CALIFORNIA CORPORATE & SECURITIES LAW

Are Alternate Committee Members “Then Serving”?

A number of amendments to Delaware’s General Corporation Law took effect at the beginning of this month.  One of these changes was to establish a default quorum requirement for meetings of committees of corporate boards of directors.  New Section 141(c)(4) provides:

A majority of the directors then serving on a committee of the board of directors or on a subcommittee of a committee shall constitute a quorum for the transaction of business by the committee or subcommittee, unless the certificate of incorporation, the bylaws, a resolution of the board of directors or a resolution of a committee that created the subcommittee requires a greater or lesser number, provided that in no case shall a quorum be less than 1/3 of the directors then serving on the committee or subcommittee.  The vote of the majority of the members of a committee or subcommittee present at a meeting at which a quorum is present shall be the act of the committee or subcommittee, unless the certificate of incorporation, the bylaws, a resolution of the board of directors or a resolution of a committee that created the subcommittee requires a greater number.

The quorum requirement for board meetings found in Section 141(b) is higher than this new default requirement for committees because the board rule is based on a majority of the “whole board of directors” as opposed to a “majority of the directors then serving”.  If, for example, a board consists of five authorized members, a quorum requires the presence of at least three directors regardless of the number of directors then in office.  In contrast, the quorum requirement for a five member committee will vary depending upon the number of directors then serving.  If there are only three members of the committee then serving, for example, a quorum requires attendance of at least two members.  If four or five members are then serving the number of directors required to achieve a quorum increases to three directors.

I’m intrigued about the impact of alternate committee members on the determination of a quorum.  DGCL Section 141(c)(1) & (2) authorizes a board to designate alternate committee members to replace absent or disqualified members.  Suppose, for example, that a board establishes a five member committee and appoints five members and one alternate.  My guess is that most practitioners would conclude that the number of directors “then serving” does not include the alternate member so that the quorum requirement is three and not four.  Does the same hold true when there are vacancies?  For example, a five member committee might have two vacancies. If the board has designated an alternate member, is the number of members “then serving” three or four?  One might plausibly argue that it is four because the alternate member became a “then serving” member when a vacancy occurred.  If that is the case, then a quorum would require the attendance of at least three members rather than two.

California does not establish a default quorum requirement for meetings of committees of the board of directors.  Thus, the bylaws for a California corporation will typically provide that the provisions of the bylaws pertaining to board meetings and actions apply to committees of the Board of Directors and action by such committees, mutatis mutandis.  Under such a provision, the quorum required for a committee meeting would be the same as that required for a meeting of the full board of directors.

Share on:

ANY QUESTIONS REGARDING CALIFORNIA CORPORATE AND SECURITIES LAW? CONTACT US DIRECTLY

We offer expert advice with the intricacies of California law.

Our years of experience and expertise allow us to help clients navigate the business laws in California.

CONTACT US

Get the latest news and analysis about California Corporate & Securities law. Subscribe to our newsletter today!

Related Articles