How to Remove an Officer of a Corporation

By Ari Mushell, J.D.

How to Remove an Officer of a Corporation

By Ari Mushell, J.D.

When organizing an S or C corporation, a new business appoints officers whose charges include making strategic decisions on behalf of the corporation. Officers are important cogs in a corporate wheel. Sometimes, however, officer decisions do not bode well for the corporation, and it is in the best interest of the corporation to remove those officers.

Businesspeople gathering around conference table

Removing a corporate officer requires a majority shareholder vote based on just cause. The party or parties seeking to remove the individual must present to shareholders warranted reasons for removal.

In addition, state corporate bylaws and company policy for removal are also relevant. Depending on the jurisdiction of the company's incorporation, state law might govern how to remove an officer. Similarly, a company's corporate bylaws often outline the removal process.

Officer Duties

A corporate officer has a fiduciary duty to act in good faith and must exercise due diligence in business-making decisions. When an officer breaches this duty, there is just cause for removal.

The following are a few examples of a breach of officer duty:

  • Officer misconduct
  • Poor business decisions
  • Negligence in duties toward the company
  • Self-dealing
  • Loss of corporate money

Documenting a Breach

Before presenting the case to the shareholders, the parties seeking officer removal should document the issues regarding the officer they want to remove. The following are investigative options for officer removal:

  • Obtaining statements from witnesses. Witnesses generally include coworkers but can also be customers or other outside parties.
  • Conducting or obtaining results from an audit. Data from an outside auditor that demonstrates how certain business decisions were costly or how certain behaviors were unwarranted and damaging is probably the most compelling evidence.
  • Consulting contracts. If the officer in question negotiated or had a say in the formation of a contract that was damaging to the company, it's valid to present how the terms of that contract were negative for the company. Graphs can show a correlation between the contract and a downward trend for the company.
  • Comparing and contrasting projections and invoices/receipts. Demonstrating bad business decisions is a useful tool. As such, providing data of theoretical projections versus actual gains can, if the projections are far off from the reality, illustrate bad decision-making.

Process for Removal of an Officer

The following is generally the process for removing a corporate officer:

  1. Identify the breach
  2. Conduct an investigation, determine local officer removal laws, and consult company bylaws
  3. Detail findings
  4. Inform the officer of the removal process
  5. Schedule a shareholders' meeting to address officer removal and inform the officer in question of the meeting
  6. Present findings to the shareholders and allow the officer in question to speak
  7. Have shareholders cast their votes
  8. Tally the votes and record meeting information

Sometimes, corporate officers do not perform their duties and require removal. When this occurs, the party seeking to remove an officer must demonstrate just cause for removal. They should conduct a thorough investigation, review local law and corporate bylaws for officer removal, and present findings to the shareholders. If a majority of voting shareholders vote to remove the officer, the vote relieves the officer of their duties.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.