Corporations are created under state law and provide a form of business structure that exists as a legal entity separate and distinct from its owners, called shareholders. To maintain its separate existence, the corporation must comply with the formalities required by state law, such as holding meetings of the board of directors to authorize corporate action. In California, the General Corporation Law requires directors’ meetings, but also permits corporate action to be authorized based upon a unanimous written consent of the directors that complies with Corporations Code Section 307(b).
A corporation's basic structure includes three levels: shareholders, directors and officers. The shareholders own the corporation and are responsible for electing the board of directors, usually on an annual basis. The directors are responsible for the management of the corporation and are the final decision makers regarding the corporation's direction and actions. The directors appoint officers, such as president and treasurer, to run the corporation's day-to-day business operations required to carry out the decisions of the board of directors.
To carry out their duties, the directors of a California corporation are required to hold meetings to discuss, vote on and approve corporate action. The General Corporation Law does not specify when or how many directors' meetings must be held during a year; however, since the directors must report to the shareholders once a year on the condition of the corporation, a director's meeting should be held at least annually. The secretary of the corporation should prepare written minutes of the meeting to be kept in the corporation's minute book. Important decisions agreed on by the directors should be set forth in writing in the form of a corporate resolution.
Directors' Action Without a Meeting
If it is impractical for the directors to meet, but board authorization is required to take some action, Corporations Code 307(b) allows the directors to act by unanimous written consent without holding a meeting. The written consent is prepared in the form of a corporate resolution signed by the directors that specifically states the action agreed to by the directors, such as appointing corporate officers. Such resolutions are often used to provide evidence to another business or government agency that a person is authorized to act on behalf of the corporation.
Interested Director Issue
It is not unusual for a board of directors to discuss and vote on matters in which one of the directors has a financial interest. Under California law, the "interested director" can be present at the meeting, but must abstain from voting on any matter in which he has an interest. The "interested director" issue also affects written consents under Section 307(b) that require unanimous consent — that is, the interested director cannot abstain the way he could from voting at a meeting. To avoid this dilemma, Section 307(b) requires that a written consent involving an interested director include a statement conspicuously set forth in the consent that discloses the director's personal interest in the matter.
Joe Stone is a freelance writer in California who has been writing professionally since 2005. His articles have been published on LIVESTRONG.COM, SFgate.com and Chron.com. He also has experience in background investigations and spent almost two decades in legal practice. Stone received his law degree from Southwestern University School of Law and a Bachelor of Arts in philosophy from California State University, Los Angeles.