Legal Question in Business Law in California

Re: Corporate: Board of Director Vacancies

Not legally. If the other shareholder doesn't object, there may not be any consequences of the omission, but it is to say the least an "irregularity" in corporate administration that is better corrected than tolerated.

Keep in mind that shareholders must meet annually to nominate and elect directors. Any vacancy should be filled. Now, a majority stockholder MAY be able to nominate and elect both directors, even if the corporation has cumulative voting, but there is no excuse to leave the second board position vacant, even if filling it means the second director is the first director's wife, brother in law, or barber.

Failure to nominate and elect a full board of directors at an annual meeting of shareholders would look, in a lawsuit by a minority stockholder, or in a veil-piercing suit by a third party, like some kind of corporate sloppiness, and depending on the provable facts might be a breach of fiduciary duty, proof of "alter ego" approach to the separate nature of the corporation, or something else equally nasty.

How does the unrepresented shareholder feel about all this? What percentage does he/she/it hold? I know of several situations where a majority owner/company founder has given, say 2%, to his main helper as an incentive, overlooked the need to add a board member, and paid a stiff price when relations sour.

As I say, maybe better to add your spouse, brother in law, or barber - or even your lawyer - to the board at this year's shareholder meeting rather than let the position remain unfilled in violation of the law.

As I say, if no one ever objects, you can get away with it indefinitely. The Secretary of State is not doing audits (as of now, anyway). But it is so easy and painless to comply, why not do so?