Directors and Management

Title 1, Division 1, Chapter 3 of the Corporations Code deals with directors and management under the general corporation law in California.

Section 300 requires the business and affairs of the corporation are to be managed and all corporate powers are to be exercised by or under the direction of the board. The board may delegate the management of the day-to-day operation of the business of the corporation to a management company.

Section 301 requires, at each annual meeting of shareholders, directors to be elected to hold office until the next annual meeting. The articles may provide for the election of one or more directors by the holders of the shares of any class or series voting as a class or series.

Section 301.5 states that a listed corporation may, by amendment of its articles or bylaws, adopt provisions to divide the board of directors into two or three classes to serve for terms of two or three years respectively, or to eliminate cumulative voting, or both.

Section 301.7 provides that a listed corporation engaged in business limited to the operation and maintenance of a recreation venture having golf and tennis facilities and ancillary dining and beverage services may, by amendment of its articles or bylaws, adopt provisions allowing division of its board of directors into two classes.

Section 301.9 states that a mutual water company organized under this division may elect directors to serve staggered four-year terms if authorized in the corporation’s articles of incorporation or bylaws.

Section 302 allows the board to declare vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony.

Section 303 provides that any or all of the directors may be removed without cause if the removal is approved by the outstanding shares subject to the three specified requirements. Any reduction of the authorized number of directors or amendment reducing the number of classes of directors does not remove any director prior to the expiration of the director’s term of office.

Section 304 authorizes the superior court of the proper county to, at the suit of shareholders holding at least 10 percent of the number of outstanding shares of any class, remove from office any director in case of fraudulent or dishonest acts or gross abuse of authority or discretion with reference to the corporation and may bar from reelection any director so removed for a period prescribed by the court.

Section 305 states that vacancies on the board may be filled by approval of the board  or, if the number of directors then in office is less than a quorum, by three other specified options.

Section 306 explains that, if a corporation has not issued shares and all the directors resign, die, or become incompetent, or a corporation’s initial directors have not been named in the articles, and all the incorporators resign, die, or become incompetent prior to the election of the initial directors, the superior court of any county may appoint directors of the corporation upon application by any party in interest.

Section 307 provides that, unless otherwise provided in the articles, all eight of the specified procedures apply. An action required or permitted to be taken by the board may be taken without a meeting, if all members of the board individually or collectively consent in writing to that action and if the number of members of the board serving at the time constitutes a quorum. The written consent must be filed with the minutes of the proceedings of the board. 

Section 308 states that, if a corporation has an even number of directors who are equally divided and cannot agree as to the management of its affairs, so that its business can no longer be conducted to advantage or so that there is danger that its property and business will be impaired or lost, the superior court of the proper county may appoint a provisional director pursuant to this section.

Section 309 requires a director to perform the duties of a director in good faith, in a manner the director believes to be in the best interests of the corporation and its shareholders and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.

Section 310 prohibits any contract or other transaction between a corporation and one or more of its directors, or between a corporation and any corporation, firm or association in which one or more of its directors has a material financial interest, is either void or voidable because the director or directors or the other corporation, firm or association are parties.

Section 311 allows the board, by resolution adopted by a majority of the authorized number of directors, to designate one or more committees, each consisting of two or more directors, to serve at the pleasure of the board.

Section 312 specifies that a corporation has four specified officers.

Section 313 provides that any note, mortgage, evidence of indebtedness, contract, share certificate, initial transaction statement or written statement, conveyance, or other instrument in writing, and any assignment or endorsement thereof, executed or entered into between any corporation and any other person is not invalidated as to the corporation by any lack of authority of the signing officers in the absence of actual knowledge on the part of the other person that the signing officers had no authority to execute the same.

Section 314 states that the original or a copy in writing or in any other form capable of being converted into clearly legible tangible form of the bylaws or of the minutes of any incorporators’, shareholders’, directors’, committee or other meeting or of any resolution adopted by the board or a committee thereof, or shareholders.

Section 315 prohibits a corporation from making any loan of money or property to, or guarantee the obligation of, any director or officer of the corporation or of its parent, unless the transaction, or an employee benefit plan authorizing the loans or guaranties after disclosure of the right under such a plan to include officers or directors, is approved by a majority of the shareholders entitled to act thereon.

Section 316 states that directors of a corporation who approve any of the three specified corporate actions are jointly and severally liable to the corporation for the benefit of all of the creditors or shareholders entitled to institute an action.

Section 317 defines the term “agent.” A corporation has power to indemnify any person who was or is a party or is threatened to be made a party to any proceeding by reason of the fact that the person is or was an agent of the corporation, against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with the proceeding if that person acted in good faith.

Section 318 requires the Secretary of State to develop and maintain a registry of distinguished women and minorities who are available to serve on corporate boards of directors. The term “minority” is defined.