A Shareholder’s Power to Remove a Director From the Board of Directors
Shareholders often inquire: How is a director removed from a corporation’s board of directors? The question may be posed out of concern that the shareholder – who also serves as a director – feels threatened as a director and is concerned about being ousted, or the shareholder may be frustrated with a particular director’s conduct and is seeking a change in leadership. Either way and in theory, removing a director from a corporation’s board of directors is relatively straightforward.
Shareholders, as the corporation’s owners, possess the power to “remove one or more directors” in an Iowa corporation. Iowa Code Section 490.808. Importantly, pursuant to Iowa law, so long as the corporation’s articles of incorporation do not state otherwise, “shareholders may remove one or more directors with or without cause.” Id (emphasis added). In other words, if the corporation’s articles of incorporation are silent and do not address the issue, shareholders may remove a director or directors without providing any justification for their decision – they can simply act and remove the director(s). For some, this very specific black-letter law exception raises an interesting legal question: What if the corporation’s bylaws (or a shareholder agreement), as opposed to its articles of incorporation, require “cause” for removing a director? Put another way, what if the articles of incorporation are silent on removal (thereby permitting removal with or without cause under Iowa law), but the bylaws state a shareholder must have cause to remove a director? Should this question arise for you or your corporation, you should consider contacting a licensed attorney for a legal opinion.
Removing a director, as with many corporate actions under the law, requires shareholders to follow a very specific removal process. For instance, as of the time of this posting, shareholders may only remove a director at a shareholder meeting that is called for the express purpose of removing the director and after proper notice is provided. The notice must state that the purpose (or one of the purposes) of the meeting is removing the director(s).
It is important to note that in addition to a shareholder’s ability to remove a director from a corporation’s board of directors, Iowa law also provides a court (Judge) with the power to remove a director from the board. A court’s ability to remove a director will be addressed in a future post.
If you are considering removing a director from your Iowa corporation’s board of directors, or if you are a director concerned about future removal, you should consider contacting a licensed attorney that practices in this area of law.
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