Why Does Determining A Quorum Have To Be So Complicated?

California's quorum requirement for meetings of directors appears on its face to be straightforward - a majority of the authorized number of directors constitutes a quorum of the board for the transaction of business.  Cal. Corp. Code § 307(a)(7).  Leaving aside the possibility of an exception in the articles or bylaws (a subject for another post), it's hard to imagine that any interpretational questions could arise under such a basic requirement.  Yet, a colleague recently called with a question that led me to more questions.

My colleague's question actually related to the quorum requirement under Delaware law - Section 141(b).  That statute provides in relevant part:  "A majority of the total number of directors shall constitute a quorum for the transaction of business unless the certificate of incorporation or the bylaws require a greater number."  Does the "total number of directors" refer to the total number then in office or the total number of authorized directors?  If, for example, the bylaws specify that there are five directors and two directors resign, is a quorum three or two?  The Court of Chancery in 1922 ruled: "The rule is that the number necessary to constitute a quorum, under a by-law such as appears in this case, is a majority of the entire board notwithstanding there may be vacancies in the board at the time." Bruch v. National Guarantee Credit Corp., 13 Del. Ch. 180, 184-185 (Del. Ch. 1922).    California didn't leave it to the courts to decide this question.  The statute is clear that it is a majority of the authorized number that constitutes a quorum.  Interestingly, Nevada takes a different approach, requiring a "majority of the board of directors of the corporation then in office".  NRS 78.315(1).  In the example, both California and Delaware would require three directors for a quorum while Nevada would require only two.

But what if the vacancies occur because the authorized number of directors has been increased?  Is a vacancy a vacancy for all purposes or are these unfilled vacancies somehow different?  Surprisingly (at least to me), the California Supreme Court long ago manufactured an exception for never-filled vacancies.  In Robertson v. Hartman, 6 Cal. 2d 408 (1936), the Supreme Court considered the validity of a resolution adopted by the directors at a meeting at which three directors were present.  The corporation had originally had five authorized directors but had increased the number to nine without filling the four resulting vacancies.  The Supreme Court found that the board had taken valid action.  This case was decided before the enactment of the current law, but as Professor Harold Marsh Jr. has observed: "since it was also clearly wrong under the terms of the prior statute, it cannot necessarily be said to have been overruled."  Marsh's California Corporation Law § 10.11[G].  The Delaware Court achieved the same result in Belle Isle Corp. v. MacBean, 30 Del. Ch. 373 (Del. Ch. 1948) ("'vacancies; as used by the court in the Bruch case did not include newly created directorships . . .").  The issue, of course does not arise under Nevada's default quorum statute because it looks to the number of directors then in office.

The final question is what does California do when the authorized number of directors is reduced?  Pursuant to Corporations Code Section 303(b), a reduction of the authorized number of directors does not remove any director prior to the expiration of the director’s term of office.  Thus, it is possible to have "seatless" directors (i.e., more directors than there are authorized seats).  Compare Crown Emak Partners, LLC v. Kurz, 992 A.2d 377 (Del. 2010).