Legal Question in Business Law in California
I am a share holder,one of four, one of the board members; shareholder; officer embezzled from the corportion. We are removing that person, howvere they will still be a sharholder. I was told by our corporate attroney"that there still has to be five board members because there is four share holders." I do know we do not have to have five board member, it's not a law, but can we just have three board members instead of four or five. I was told the reason for the five members is because of the four shareholders. Is it true that there has to be at least the same amount of board members as shareholders or can the corporation run with just three board members and four shareholders? This is a family business.
2 Answers from Attorneys
There are two sources for rules governing the number of directors a corporation needs: (1) the law of the state in which it is incorporated; and (2) its own bylaws.
Assuming the corporate bylaws allow a three-member board, then you need to check state law. If this is a California corporation, the applicable law is Corporations Code section 212(a), which says the minimum number of directors is three (3), except that a two-shareholder corporation needs only two directors and a one-shareholder corporation needs only one director.
So, assuming yours is a California corporation, you need at least three directors, and perhaps more if your bylaws so require. Your attorney seems to be wrong, however, as to the reason, and perhaps wrong as to the number.
The answer to your question is in your corporation's By-laws. If you don't have a copy, you can get them from the corporation's secretary. If your attorney has given you his opinion, it is most likely based on what the By-laws say. Generally, most corporations are set up to have an odd number of directors on the board in order to prevent tie votes (i.e. 3-2 or 2-1 instead of 2-2), so that may be what your By-laws say.