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Can a company appoint new board members and corporate officers without telling minority stockholders?

San Francisco, CA |

Company is incorporated in Delaware but all of its offices are in California. It is a privately held company. I am a minority stockholder and just came across a press release saying the company had appointed new members of board of directors and new corporate officers. I asked the company and they confirmed these new appointments. Don't they have an obligation to notify stockholders of these types of things. I shouldn't have to discover by seeing a press release. Is there any legal action I can pursue?

Attorney Answers 4

Posted

Shareholders elect the directors, and the directors elect the officers. I'd be surprised if there were a way to hold an election of directors without notifying all shareholders of a meeting, but I'd have to check the by-laws and the facts of your case to be sure.

Assuming an impropriety in the election of directors, you can take action to have the election voided -- only to see those same directors re-elected in a properly held election shortly thereafter. You may also have rights as a shareholder to inspect corporate books and records. In a worst case scenario, you may have a claim for breach of fiduciary duty -- but the existence of any such claim depends on a lot of facts not present here.

A consultation with a lawyer may help clear this all up for you.

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Posted

You will need to review the Bylaws of the company to determine what notice provisions were required for the actions taken. Was there a board meeting? Was it properly called? Did you receive the notice you were entitled to as a shareholder?

There are a number of governance questions that must be answered before your legal options will be clear. Start with the Bylaws and consult with a good business attorney to determine whether the action taken was appropriate.

Legal disclaimer: The answer provided above is for general information purposes only and should not be relied on as specific legal advice. This answer does not form an attorney-client relationship. You should consult with an attorney of your choice to fully advise you about your legal rights and obligations.

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Posted

Only shareholders can elect directors (although most bylaws provide that directors can fill vacancies until the next annual meeting of shareholders.) Officers are appointed by the Board of Directors and shareholders are usually not consulted or advised.

I hope you all have a buy-sell agreement in case you die, become permanently disabled, or wish to withdraw from the corporation since there is no public market for the shares and no pre-agreed formula for valuing the shares.

The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here.

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Posted

Is completely dependent on what the company Bylaws say in this regard (which were initially adopted by the shareholders when company was first organized). Albeit somewhat insensitive to not convey such information to all shareholders, advance notice may not be required. I do think you should at least document your objection in writing to the board so they consider changing their ways to at least show some transparency given all board members have fiduciary duties to all shareholders.

My answer is not intended to be giving legal advice and this topic can be a complex area where the advice of a licensed attorney in your State should be obtained.

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