As seen in our web article, Corporate Struggles: Who Has Power When Push Comes to Shove, the Board of Directors is the true governing body of a California corporation, making most of the strategic decisions for the company including hiring or firing the officers who run the company on a day to day basis. The shareholders elect the Directors but the Directors run the company.
Due to the nature of cumulative voting, the number of directors the company has can make a tremendous difference in who can elect a majority of the Board. To protect minority rights, the California law requires a certain number of directors to be on the Board. This article briefly gives the minimum number required as well as the officers that must be elected by the Board.
1. What is the minimum number of directors of a corporation?
2. What is the minimum number of officers of a corporation?
1. DIRECTORS: Not less than three, unless there are only one or two shareholders of record, in which case the number of directors may be less than three but not less than the number of shareholders.
2. OFFICERS: The three required positions are President, Secretary and Treasurer. Although most jurisdictions allow one person to serve in all three capacities, that person has different responsibilities depending on the capacity in which he or she is acting.
- The Articles of Incorporation may set forth the number of directors of the corporation in compliance with Corporations Code section 212(a). If the number of directors is set forth, the number must be either a specified number or a range identifying an acceptable minimum and maximum number of directors -- but not both. The minimum number in a range cannot be less than three and the maximum number cannot exceed the minimum by more than two times the minimum minus one (e.g., not less than three nor more than five).
2. Corporations Code section 312
(a) A corporation shall have a chairman of the board or a president or both, a secretary, a chief financial officer and such other officers with such titles and duties as shall be stated in the bylaws or determined by the board and as may be necessary to enable it to sign instruments and share certificates. The president, or if there is no president the chairman of the board, is the general manager and chief executive officer of the corporation, unless otherwise provided in the articles or bylaws. Any number of offices may be held by the same person unless the articles or bylaws provide otherwise.
(b) Except as otherwise provided by the articles or bylaws, officers shall be chosen by the board and serve at the pleasure of the board, subject to the rights, if any, of an officer under any contract of employment. Any officer may resign at any time upon written notice to the corporation without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.
A key aspect of the law above is that a contract can protect the officer from termination at the pleasure of the board. Thus, a minority shareholder who fears that a board controlled by the majority shareholder might fire him or her, should seek a written employment agreement to avoid such termination.
It should also be noted that the rules for cumulative voting are a critical protection for a minority shareholder. While the rules are complex and should be discussed with legal counsel, in California it essentially means that a person with one third of the shares can normally elect one out of three directors, etc. While the owners of a majority of the shares will still be able to control the Board of Directors, it does allow for some minority representation on the Board.