When A Director Is Removed, Can The Shareholders Fill The Vacancy By Written Consent?

Allen Matkins
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Allen Matkins

When a director is removed from the board of a California corporation, a "vacancy" is created.  Cal. Corp. Code § 192.   The board of directors cannot fill the vacancy unless the board is authorized to do so in the articles of incorporation or a bylaw adopted by the shareholders.  Cal. Corp. Code § 305(a).   Typically, they don't.  This means that in most cases it is up to the shareholders to fill the vacancy.  Today's question is can the shareholders do so by written consent, and if so, what vote is required?

The last sentence of Section 305(a) states that the vacancies created by removal may be filled "only by approval of the shareholders (Section 153)".  The last sentence of Section 305(b), however, provides that an election by written consent to fill a vacancy created by removal "requires the unanimous consent of all shares entitled to vote for the election of directors".    At first blush, these two requirements appear to be inconsistent, but are they really?

Section 153 defines "approval of the shareholders" as:

"approved or ratified by the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) or by the written consent of shareholders (Section 603) or by the affirmative vote or written consent of such greater proportion (including all) of the shares of any class or series as may be provided in the articles or in this division for all or any specified shareholder action."

Thus, Section 153 clearly encompasses the written consent of shareholders but it also references Section 603.  Subdivision (d) of Section 603 prohibits the election of directors by written consent, except by the unanimous written consent of all shares entitled to vote for the election of directors.  The statute then makes an exception for the election of a director to fill a vacancy (which may be by the written consent of a majority of the outstanding shares entitled to vote).  However, there is an except to the exception for a vacancy created by removal.  Thus, Section 603(d) and Section 305(b) are consistent.  Shareholders may by written consent fill a vacancy created by removal, but the consent must be unanimous consent of all shares entitled to vote for the election of directors.

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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