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Breaking Bad At Board Meetings

Suppose that the articles of incorporation of a California corporation provide that the authorized number of directors is 7.  Unless the articles or bylaws provide otherwise, the attendance of 4 directors will constitute a quorum.  Cal. Corp. Code § 307(a)(7).  If four show up for a duly called and noticed meeting, the board may transact business and a vote of 3 of the 4 directors will constitute the action of the board. Cal. Corp. Code § 307(a)(8).  If one of the directors disagrees with a proposed action and leaves, she will break the quorum but can she prevent the action from being taken?

The board can still take action notwithstanding the loss of a quorum provided that the 3 remaining directors vote in favor of the transaction.  Under Section 307(a)(8), directors may continue to transact business at a meeting at which a quorum is present notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.  In this example, the required quorum is 4 (a majority of 7) and a majority of the required quorum is 3.  

While the above is generally true, the vote of may not suffice for purposes of either Section 310 (concerning approval of transactions with interested directors and interlocked directors and Section 317 (concerning approval of indemnification of agents).

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California Corporations Code, Corporate Governance

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