Does The Corporations Code Permit “Boards R Us”?

In an article published last summer, Professors Stephen Bainbridge and M. Todd Henderson argued that “significant gains that could be realized by permitting firms (be they partnerships, corporations, or other business entities) to provide board services.”  The Professors note that state law requirements that directors be natural persons are significant barriers to the implementation of their idea.  See, e.g., Cal. Corp. Code § 164 (““Directors” means natural persons designated in the articles as such or elected by the incorporators and natural persons designated, elected or appointed by any other name or title to act as directors, and their successors.”) and NRS 78.115 (“The business of every corporation must be managed under the direction of a board of directors or trustees, all of whom must be natural persons who are at least 18 years of age.”).  

However, the California Corporations Code does allow corporations to implement the Professors’ idea to a significant extent.  Corporations Code § 300(a) provides:

“The board may delegate the management of the day-to-day operation of the business of the corporation to a management company or other person provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the board.”

I’m not familiar with any corporations that have taken advantage of this provision.  If you have any experience with the use of management companies to run a corporation, please let me know.

 


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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