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Removal Of Directors Without Cause

Broc Romanek at The Mentor Blog has been writing about publicly traded companies that reportedly continue charter provisions allowing shareholders to remove directors only for "cause".   Section 303 of the California Corporations Code generally permits removal of any or all of the directors without cause if the removal is "approved by the outstanding shares" (defined in Section 152).  The statute, however, is subject to several conditions intended to address cumulative voting rights; situations in which the holders of a class or series are entitled to elect one or more directors; and classified boards.     

Under the California General Corporation Law, there are only two other ways in which a director may be removed from a board.  First, Section 302 authorizes the board to declare vacant the office of a director declared of unsound mind by an order of the court or convicted of a felony.  Second, Section 304 authorizes the superior court to remove from office any director in case of "fraudulent or dishonest acts or gross abuse of authority or discretion with reference to the corporation".  Shareholders holding at least 10% of the outstanding shares of any class are authorized to bring suit under the statute.  

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