Legal Question in Business Law in California

Re: How do we legally remove a C.E.O

It depends upon what the corporate documents have to say about this issue and/or what any contract that may exist between the corporation and the CEO has to say. You need to have an attorney with experience in this area review the documents to determine your best strategy. You are invited to call.

Re: How do we legally remove a C.E.O

Your corporate bylaws and/or shareholder and/or buy-sell agreement and/or employment agreement with the CEO should provide the answers. If not, then the default provisions of the California Corporations Code (assuming this is a California corporation) apply. Regardless, you need to get a business attorney involved to make sure things are done correctly.

Re: How do we legally remove a C.E.O

You do so with the assistance of an attorney that knows what he is doing in preparing all the corporate documents and required government notices to remove him, and taking action against him on unfair competition if it can be proved. Feel free to contact me if serious about doing it right.

Re: How do we legally remove a C.E.O

I will try to give you a little more concrete answer. First, recognize that removing someone as a CEO and as a shareholder are two very separate matters. You remove a CEO by action of the board of directors, the same way he or she became CEO in the first place. There is one other wrinkle to it; if the individual was under contract to hold that position, although the corporation still has the power to remove the CEO by vote of the Board, the act of removal may also be a breach of contract for which the corporation is liable in damages. In other words, the Board always has the power to remove the CEO, but it may not always have the right to do so.

If the CEO is also a director, you have three actions to consider, not just two, because removing a director is not the same as removing a CEO. For guidance on removal of directors without cause, see Corporations Code section 303; as to removal for cause, see section 304. Also check and follow the corporation's bylaws as to removal procedures and filling the vacancy created.

Now, as to the stock the CEO owns. Unless there is a buy-back contract or the shares themselves are callable (which is unlikely in a small business), there is no way I know of that the corporation can force the CEO, ex-CEO, or anyone else to give back, sell or otherwise surrender their shares.

As to paying someone for service as a director, directors ordinarily are not entitled to be paid unless the corporation has agreed to pay them. Serving on a board of directors is not a job, it's not employment.

Finally, as to competition, a CEO, director or other senior officer probably has a fiduciary duty of loyalty that would be breached, and render her or him liable to your corporation, if he or she started a competing company prior to resigning or being kicked out. There is also some case law and some scholarly articles suggesting the fiduciary duty of loyalty, i.e., not to compete, continues for a while after the CEO or director resigns, but this is a shaky theory, and more likely the ex-CEO would be free to start a competing business, and that would be true whether or not he/she had signed a non-compete agreement, because such agreements are usually void as contrary to public policy. See Business and Professions Code sections 16600, 16601 and 16602.