Adding and Removing Directors on a Board
Corporations have three key positions: the shareholders who own the company; the board of directors, each of whom is appointed by the shareholders and manages the company; and the officers who run the day-to-day activities and are appointed by the directors.
Since a Delaware Corporation's Board of Directors controls the appointing of the officers, the Board can also remove officers as deemed necessary. However, how does the company change or alter the Board of Directors? Let's discuss the processes that shareholders will need to follow when adding or removing a director from a company.
What is a Board Member?
A board member, also called a director, is an individual who serves on a company’s Board of Directors. The board is responsible for overseeing the corporation’s major decisions and helping guide the overall direction of the business. While officers and employees usually handle day-to-day operations, the board focuses on higher-level matters, such as appointing officers, approving major transactions, issuing stock, and making decisions that affect the company’s long-term future.
Because directors play an important role in corporate governance, adding or removing a board member should be handled carefully. The company should follow its bylaws and document the decision properly.
Why Do Board Changes Happen?
Board changes can happen for many reasons as a company grows, restructures, or responds to new business needs. A corporation may add a board member to bring in additional experience, satisfy investor requirements, improve oversight, or prepare for a major transaction. For example, a company may want a director with financial, legal, industry, or operational experience to help guide important decisions.
Board changes may also occur when an existing director resigns, retires, passes away, becomes unable to serve, or is no longer the right fit for the company. In some cases, shareholders may seek to remove a director because of poor performance or a disagreement about the company’s direction.
How to Add a Board Member
For Delaware corporations, the process for adding a director is generally handled as an internal corporate governance matter. Shareholders typically elect directors according to the voting procedures outlined in the corporation’s bylaws and Certificate of Incorporation. Before adding a new board member, the corporation should confirm who has authority to approve the appointment, how the vote or written consent must be handled, and whether the board seat is newly created or being filled after a vacancy.
- Review the corporation’s governing documents.
- Determine whether there is an open board seat.
- Nominate or select the new director.
- Obtain shareholder approval.
- Document the decision.
- Update internal records and notify key parties.
How to Remove a Board Member
Removing a board member should be handled carefully because directors are usually elected by shareholders and may have rights under the corporation’s bylaws and applicable state law. For Delaware corporations, Section 141(k) of the Delaware General Corporation Law generally gives shareholders the authority to remove directors by the required shareholder vote. In many cases, directors may be removed with or without cause, although special rules may apply for classified boards or corporations with cumulative voting.
The process may vary by company, but it often includes the following steps:
- Review the corporation’s governing documents.
- Determine whether the director is resigning or being removed.
- Confirm who has authority to approve the removal.
- Hold the vote or obtain written consent.
- Document the decision.
- Fill the vacancy if needed.
- Update internal records and notify key parties.
Do You Need to File Anything With the State?
In Delaware, adding or removing a director is usually an internal corporate matter and does not require a separate filing with the Delaware Division of Corporations at the time of the change. The corporation should still document the change internally, but that documentation doesn’t need to be submitted to the state.
However, Delaware corporations must report the names and addresses of their directors on the corporation’s Annual Report, which is due by March 1 each year. This report reflects the corporation’s directors as of that filing period and does not necessarily show every director change that may have occurred during the year.
Documenting Board Changes
Even when a board change does not require a state filing, the corporation should keep clear internal records of the decision. Proper documentation helps show that the company followed its bylaws and applicable corporate law when adding or removing a director.
The exact type of documentation may depend on how the change occurred. If shareholders or directors approved the change at a meeting, the decision should be recorded in the meeting minutes. If the action is taken without a meeting, the company should keep a written consent or corporate resolution signed by the required parties. If a director resigns voluntarily, the corporation should request a written resignation and keep it with the company’s records.
Ensure that your documentation includes the name of the director being added or removed, the date of the action, and the approval method. Afterward, the corporation should update its corporate records and any related documents used by banks, advisors, investors, or company officers.
FAQs
How many directors does a board need?
The number of directors in a corporation depends on the company’s governing documents and the law of the state where it was formed. Many small corporations have only one director, while larger corporations may have several board members. The corporation’s bylaws will usually state the required number of directors, or explain how that number can be changed.
Are directors and officers the same thing?
No. Directors serve on the Board of Directors and oversee major company decisions, such as appointing officers and approving important transactions. Officers, such as the president, secretary, or treasurer, usually manage the corporation’s daily operations. In a small corporation, the same person may serve as both a director and an officer, but the positions are legally distinct.
Does a Delaware corporation need to list directors publicly?
A Delaware corporation does not typically need to file a separate document with the Delaware Division of Corporations each time a director is added or removed. However, Delaware corporations must list the names and addresses of their directors on the corporation’s Annual Report, which is due by March 1 each year. This means director information is reported to the state annually.
*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such sources of content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.
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There are 2 comments left for Adding and Removing Directors on a Board
JS Tamal said: Tuesday, July 5, 2022Excellent information, I would like read all stuff to improve my corporate knowledge.
HBS Staff replied: Tuesday, July 5, 2022Thank you for reading our blog and we are glad you found it helpful.
Nick Plastiras said: Monday, May 16, 2022How can we proceed to change the Managing member of an existing Llc corporation and get a fresh certificate of incumbency/ good standing ?
HBS Staff replied: Monday, May 16, 2022Hello Nick,
Thank you for reading our blog and for your question. The removing of members (owners) in an LLC is done internally through the LLC Operating Agreement and not required to be disclosed the State of Delaware nor to Harvard Business Services, Inc.
For a corporation, you will do this through the bylaws, but the State of Delaware will require you to file and amended Annual Report.
We will reach out to help further assist you and guide you.