How to Remove an Officer of a Corporation

By Wayne Thomas

The individuals charged with making important strategic and financial decisions for a corporation must act based on the information available at the time. Sometimes, an appointed officer does not live up to the expectations of the board of directors and his removal is necessary. Understanding the protocol for removal -- and the strategic roles that company bylaws and shareholder voting play in the process -- can help you determine whether a corporate structure is right for your business. Those who run a small or closely held corporation face additional considerations if shareholders take on a director or officer role or if only a few individuals hold the majority of shares.

The individuals charged with making important strategic and financial decisions for a corporation must act based on the information available at the time. Sometimes, an appointed officer does not live up to the expectations of the board of directors and his removal is necessary. Understanding the protocol for removal -- and the strategic roles that company bylaws and shareholder voting play in the process -- can help you determine whether a corporate structure is right for your business. Those who run a small or closely held corporation face additional considerations if shareholders take on a director or officer role or if only a few individuals hold the majority of shares.

Overview of Corporate Structure

Corporations are a type of business structure formed according to state law. You must register a corporation with the state -- and it's considered an independent legal entity, wholly distinct from the shareholders who own the company. The board of directors, elected by the shareholders according to the procedure outlined in the corporate bylaws, is responsible for business operations. Because the board is in charge of making major strategic and financial decisions, they meet collectively and appoint officers and hire executives.

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Rights of Shareholders and the Board

State law specifies the voting rights of shareholders in a corporation. The weight given to a shareholder's vote is based entirely on the number of shares owned. For example, if the corporation were holding an election for filling a vacancy on the board of directors, the vote of a shareholder who owns 80 percent of the shares would carry 80 percent of the weight in the election. A duly elected board then has the authority to adopt corporate bylaws that spell out how the board will operate and how management decisions will be made.

Removing an Officer

The day-to-day operations of the company are delegated to the officers. Officer positions might include a president, vice president, secretary and financial officer. The board is in control of both the nomination of officers and their removal. While removal can be based on a majority vote, the bylaws might require a different proportion, such as unanimous, super-majority or two-thirds approval. For this reason, it's essential that bylaws are drafted with care and that the board fully understands them, as they must observe every rule.

Removal of an Officer/Shareholder

Sometimes, a person nominated by the board to serve as an officer of a corporation is also a shareholder. This occurs more frequently in S corporations, which are limited in size and, in some instances, can allow a shareholder to be on the board and serve as an officer at the same time. If the officer is removed by the board according to the bylaws, but also owns shares in the company, her removal does not affect either her shares or the weight of her vote. This means that a removed officer with a large proportion of shares could affect the composition of the board up to the time she sells her shares.

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Can an Owner Be a Manager in a C Corporation?

References

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Corporation vs. Officer vs. Owner

A business that operates as a corporation generally drafts bylaws – a document that governs all aspects of the company. Commonly, the bylaws will provide the limitations on the type of transactions the corporation can engage in, the rights of owners, the role of the board of directors and how the business will be managed by officers.

The Responsibilities of the Board of a C Corp

A "C" Corporation is the standard form of a corporate entity; it is a separate legally taxable organization, which generally protects the shareholders from being personally responsible for the business’s liabilities. The board of directors is elected by the corporation’s shareholders to oversee the business. While the board does not manage the day-to-day operations, it is responsible for establishing the overall strategy for the business. The directors are fiduciaries of the shareholders, which mean that any actions they are authorized to take are subject to certain standards.

How to Remove an Officer From Articles of Incorporation

A corporation is organized under state law by filing articles of incorporation that specifically conform to the state's statutes. Most states make listing members of the board of directors in the articles optional or require only a listing of initial directors but not updates when the composition of the board changes. If a corporation chooses to list board members and wants the information to be current, it can change the names by amending the articles of incorporation.

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