How to Add Directors to a Corporation

By Tom Speranza, J.D.

How to Add Directors to a Corporation

By Tom Speranza, J.D.

Every corporation has owners and managers. Shareholders own the company while the directors—and the officers they appoint—manage it.

Businesspeople at conference table

From time to time, a corporation might need to add to its board of directors, either because there's a vacancy in one of the existing board positions or because the company wants to increase the size of the board.

Although corporation laws vary by state, what follows is a summary of the steps a Delaware corporation must take to add directors to its board. Delaware is the most popular state for forming corporations, and this summary is generally applicable to a majority of the other states.

Filling a Vacancy in an Existing Board Position

As a general rule, shareholders must elect directors each year at an annual meeting. In other words, most companies have directors who serve on the board for one or more one-year terms.

If a vacancy on the board occurs between annual meetings (for example, because a director resigns, retires, or dies) the remaining directors elect a replacement director by majority vote. This vote can take place at an in-person meeting or by written consent, and the new director serves on the board until the next annual meeting of shareholders. The new director's membership on the board continues beyond the annual meeting if the shareholders holding a majority of the shares elect the new director in a vote that takes place at an in-person meeting or by written consent.

In some situations, the process for filling a vacancy is more complicated:

  • A company's articles of incorporation or bylaws may require the shareholders to elect replacement directors to fill vacancies on the board.
  • A company may have a so-called staggered board in which the directors serve for multiyear terms that don't run concurrently. For example, the directors might serve for staggered three-year terms, with the shareholders electing one-third of the board each year. If a vacancy occurs on a staggered board, the replacement director chosen by the remaining directors does not require shareholder approval at an annual meeting until the end of that director's predecessor's term.
  • A company may have a classified board in which only shareholders holding a certain class of the company's stock elect certain directors. If a vacancy occurs on a classified board, the remaining directors elected by the same class of stock as the departing director are the only board members who appoint the replacement director.

Increasing the Size of the Board of Directors

The process for increasing the number of seats on a corporation's board depends on how the articles of incorporation deal with the size of the board.

 

Corporations with Articles that Require a Board to Be a Fixed Size

If the articles of incorporation provide that the board of directors must have a fixed number of individuals serving on it, a company must first change the articles of incorporation and then appoint new directors:

  1. By majority vote, the directors must approve a resolution to amend the articles of incorporation to increase the number of board seats.
  2. The shareholders owning the majority of company's shares must approve the amendment to the articles of incorporation.
  3. The company files the amendment with the Secretary of State's office and pays the required filing fee.
  4. The company's directors must approve by majority vote a resolution that increases the number of board seats and appoints directors for the new seats.
  5. The new directors serve on the board until the next annual meeting of shareholders.
  6. New directors can continue on the board if elected at the next annual meeting by shareholders holding a majority of the shares.

    Corporations with Articles that Permit a Board with a Size Range

    If the articles of incorporation allow a number of directors within a certain range, the process is slightly different:

    1. The directors must approve by majority vote a resolution that increases the number of board seats and appoints directors for the new seats.
    2. The new directors serve on the board until the next annual meeting of shareholders.
    3. The new directors can continue serving on the board if elected at the next annual meeting by the shareholders holding a majority of the shares.

    A corporation might need or want to add directors to its board for a variety of reasons. Whether the corporation is filling a vacancy in an existing board seat or creating new board seats is relevant to determining the correct process. The corporation then needs to review its state law, articles of incorporation and bylaws and subsequently hold the necessary meetings, and approve the required resolutions by the mandatory votes.

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