A North Carolina corporation typically has a board of directors, and all the powers of the corporation are exercised under the authority of the board. The board is a supervisory authority. But what is the origin, powers, and duties of a board of directors in a North Carolina corporation?
There are three sources of power in a North Carolina corporation: the board of directors, the officers, and the shareholders. The board’s authority starts where the shareholders’ authority ends, and a board is authorized to perform all powers that are not specifically reserved for shareholders.
The board of directors has high-level management powers, setting policies that are implemented by the officers (officers being, for example, the president, CEO, vice presidents, secretary, treasurer, and so on).
The North Carolina Business Corporations Act, G.S. §§ 55, et seq., is the statute that addresses corporations in our state. It expressly provides that a board of directors has power to affect the following matters:
Adopting or amending bylaws,
Authorizing and defining the rights of shares of stock,
Declaring dividends and authorizing distributions,
Calling shareholder meetings,
Appointing officers, and
Authorizing dissolution of the corporation.
Directors may act by holding formal meetings pursuant to G.S. § 55-8-20, or by simply authorizing the corporation to take action via a written consent pursuant to G.S. § 55-8-21. Meetings of the board of directors are conducted pursuant to the bylaws, typically on an annual or quarterly basis, though the bylaws may allow for special meeting at any time with five days’ notice, pursuant to G.S. § 55-8-22.
The board of directors of a corporation typically acts by majority vote. A quorum of the directors must be present, though a greater number of votes may be required by the bylaws or the articles of incorporation. The Business Corporations Act states that a director who attends a meeting is deemed to have assented to the corporation’s actions unless he or she specifically objects to the meeting at the beginning or otherwise makes a formal objection. The purpose of this requirement is so that the intent of all board members is clearly expressed in the corporate minutes. Every corporation should keep minutes of its board of directors’ meetings.
The number of members of the board of directors is not set by statute. Thus, the bylaws or articles of incorporation may set it at any number so long as there is at least one director. After shares in the corporation have issued, though, then only the shareholders may alter the number of directors.
The board of directors is elected annually at the annual shareholders’ meetings, though it is permissible to elect board members to staggered terms. The purpose of permitted staggered terms on the board is so that there is always a board member with prior experience. When staggering the directors’ terms, they are divided into multiple equal classes with terms expiring at specified, staggered, yearly meetings.
Removal of board members is also possible. The shareholders of a corporation may remove a board member either with or without cause under the default provisions of the Business Corporations Act. However, the corporation’s bylaws may override this default rule and may specify that a director may only be removed for cause. Directors may be removed by the shareholders by providing notice that the removal will be voted on at a shareholder meeting, or at any time by a majority of the shareholders.
The board of directors is important because it steers the course of the corporation. The board is chosen by the shareholders and may be removed by the shareholders, but it also chooses the officers of the corporation and may remove those officers. The board typically does not deal with the day-to-day operations of a corporation, but it does make major decisions about how the corporation is to be run.
As the most powerful actor in the corporation, almost everything the corporation does implicates the board one way or another. It may sometimes be difficult to determine whether a board is, for instance, complying with its fiduciary duties, or acting in accordance with provisions of the bylaws. It is always important for shareholders and officers to be aware of a board of directors’ actions. Likewise, it is important for board members to remain cognizant of their obligations to the corporation and its shareholders.
Dye Culik PC is a Charlotte, North Carolina business law firm that deals with matters of corporate governance and business litigation. Our firm represents shareholders, board members, and directors in matters implicating the North Carolina Business Corporations Act, as well as other North Carolina corporate law. If you have a question about a company that you’re involved in, contact us to see how we can help.