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TexLaw
TexLaw, Attorney
Category: Legal
Satisfied Customers: 4164
Experience:  Lead trial/International commercial attorney licensed 11 yrs
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Is it possible to remove an entire board of directors? My

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Is it possible to remove an entire board of directors? My company is a small non-profit agency. The Board of directors (6 members) is very out of touch with what our organization truly does, and the decisions of the board chair and others have prevented us from reaching our potential. Rather than accepting their responsibility in these areas and acknowledging their detrimental effects on the organization, the board members (especially the chair and vice-chair) look for other things to blame for problems within the company. Our staff is small - just 16 employees - yet all employees are in agreement that the board needs to go. Can we get rid of the current board and establish a new one with members who truly understand and care about our mission? This board is not going to voluntarily resign. Are there legals ways we can get them out?
Submitted: 1 year ago.
Category: Legal
Expert:  TexLaw replied 1 year ago.
Hi,

Thank you for your question.

A non-profit corporation with a board of directors is governed by that board of directors pursuant to the articles of incorporation and the by-laws. The articles of incorporation and the by-laws will list the specific legal proceedings which must take place to remove a director. Outside of these procedures, there is no legal way to remove the director, must less the entire board of directors.

In other words, you will have to vote them out.
Customer: replied 1 year ago.

May the staff of the organization create a petition asking for the removal of the board?

Expert:  TexLaw replied 1 year ago.
The petition would not have any legal effect.

The real question here is who gets to vote for the board of directors. Do you have any idea on who the voting members are?
Customer: replied 1 year ago.

All six board members, including the officers (Chair, Vice-Chair, Treasurer, and Secretary) get to vote, but the officers are all in cahoots with one another. It is a "good old boy" network. None of them know what they are doing, and their lack of knowledge is hurting the company badly. I almost wonder if they are intentionally doing things to undermine the company. My staff and I feel that the board is our biggest problem. We have no faith or trust in them, and we want to take some action before they drive our company into the ground.

Expert:  TexLaw replied 1 year ago.
A non-profit company belongs to the members of the company. They are the parties that have ownership interest in the company and in its assets. If the employees of the company are not granted membership rights and voting rights under the company's charter, then the employees have no actual say in the running of the company.

So, if the directors are the only members entitled to vote to elect directors to the company, then you as a non-director employee of the company have no legal rights to force the board out.

Do you believe that the board is acting in any way that is a violation of the law?
Customer: replied 1 year ago.

There are irregularities. Company bylaws require a minimum of 7 board members; we have only had 6 for nearly a year now. Bylaws also require quarterly board meetings, yet we did not have one for the third quarter last year. Furthermore, the chairman of the board decided that he would create the IRS form 990 for the company this past year, which may be a conflict of interest. I am a member of the board, yet I just recently discovered that the remainder of the board had 3 or 4 "private meetings" without my knowledge over the last 2 or 3 months. Bylaws state that each members of the board is to be informed of meetings at least three weeks in advance of the meetings. I was told after the meetings had taken place. Are these violations of the law?


 

Expert:  TexLaw replied 1 year ago.
You are member of the board? Why didn't you say so from the beginning!

As a board member, you have additional rights. First, you are voting member and thus have standing to assert the rights of the company against the board. In this circumstance, you can force the board to comply with the by-laws in court. You would essentially be suing as in a "shareholder derivative" suit against the board on behalf of the company.

Also, as a board member, you can receive a petition signed by the staff and circulate it amongst the other board members and request a vote to for a new board. As a board member, you may initiate proceedings against other board members to force a vote to remove them.
Customer: replied 1 year ago.

I am CEO of the company, yet I also serve on the board, though not as an officer. I do have a vote.


 


My fear in all of this is that if I present a petition from the staff to the board stating the staff's desire for the board members to step down and lack of trust in the board, the board could refuse and take a vote to shut the organization down or merge it with a larger company, or they could just fire me and hi-jack the company further. I am trying to determine (1) if I have grounds to take action - as you seem to indicate I do, (2) what type of action I can take, and (3) what action I may have if the board fires me or does as I stated above - tries to sell the company out.

Expert:  TexLaw replied 1 year ago.
You are right, about this, if you lose your gambit, you could end up losing your job and you could also end up having the board vote to do exactly as you are afraid.

The members of the board of directors have a fiduciary responsibility to the non-profit members to exercise due care in performing their duties, and to act reasonably and in good faith in accord with the best interests of the non-profit. As a member, you can sue the board member for a breach of fiduciary duty in not following the requirements in the by-laws regarding meetings.

Essentially, you may file the suit on behalf of the company against the offending board members. The procedures for doing this are very complex and are outside of the scope of this website. Suffice it to say, you need to hire a local lawyer who does business and corporate litigation and inquire about bringing a shareholder derivative suit against the other board members. That lawyer will need to sit down with you and examine all the documents and evidences you have of violations of the by-laws by the other members, and provide you with a full assessment as to whether you have a strong enough case to merit the action.

IN regard to the board firing you, do you have a written employment contract as the CEO?
Customer: replied 1 year ago.

Unfortunately, no. That is one of the problems. The board chair is very lax about things like contracts and votes and so forth. I asked for a contract but never got one.

Expert:  TexLaw replied 1 year ago.
Then I'm sure you are aware that you are an at-will employee.

I have researched Virginia case law on this matter and cannot find any case that covers this issue specifically.

However, cases in other states all indicate that the court will not find that there is retaliation protection for an employee who is terminated for participating in a shareholder derivative action.

That being said, the termination will not remove you as a board member, and you can seek an injunction against this type of board action once you have filed your lawsuit.

Please let me know if you have any further questions. Please also kindly consider rating my answer positively so that I am compensated by the website for my work on your question. Rating positively does not cause an additional charge and does not prevent us from further discussing your questions.

Best Regards,
ZDN
TexLaw, Attorney
Category: Legal
Satisfied Customers: 4164
Experience: Lead trial/International commercial attorney licensed 11 yrs
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