A House Divided Without Provision For A Provisional Director?

Allen Matkins
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Allen Matkins

This week, I have been writing about Section 308 of the California Corporations Code.  Subdivision (b) of the statute authorizes the Superior Court to appoint one or more provisional directors when "the shareholders of a corporation are deadlocked so that they cannot elect the directors to be elected at an annual meeting of shareholders".  Typically this will occur when there are two shareholders holding an equal number of shares or two factions of shareholders, each holding one-half of the shares.  It is possible, however, that one shareholder faction will hold significantly more shares than the opposing faction and yet the shareholders will be unable to elect directors at the corporation's annual meeting.  I explained how this can happen in An Unexpected Impasse.  Section 308(b), however, does not appear to be available to remedy the problem because the statute requires that the petition for a provisional director must be made by "a shareholder or shareholders holding 50 percent of the voting power".  Relief may be available under Section 308(a) if there is a deadlock on board such that either (i) the corporation's business can no longer be conducted to advantage; or (ii) there is danger that its property and business will be impaired or lost.  As noted in Monday's post, relief under Subdivision (a) may be obtained by a director or by the holders of not less than 33 1/3 percent of the "voting power" as defined in Section 194.5. 

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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