Using a Temporary Director on Your Board of Directors

You likely know that your Board of Directors will have to vote on matters concerning the company. What matters they will vote on and when, depend on your corporate documents, such as your bylaws. But when it comes time to vote, they will have to make the decision.

How Many Directors?

If you have drafted bylaws, you may have taken the extra step to ensure that you have an odd number of Directors, so as to avoid having a tie vote on important matters.

But you may not have thought of it—and even if you did, life events can often mean that you have vacancies on your Board of Directors, which can lead to you having an even number of directors, at least for a temporary amount of time.

Corporate Documents

Corporate bylaws, or even a corporate resolution (voted on by the Board), can say how your company will handle tie votes in Board of Directors meetings. Most bylaws say that a tie counts as a loss (or a rejection of whatever is being voted on), but yours doesn’t have to say that.

But what if your bylaws are silent about that? What do you do if you have a crucial matter that needs to be determined by the board, but there is a tie?

The Temporary Director

One option—again, if you haven’t planned in advance for this happening through your corporate documents—is to ask a Court to appoint what is known as a provisional director whose sole job it is to vote and break an existing tie on your Board of Directors.

This temporary director plays a dual role; he or she is obviously acting at least temporarily as a Director, solely for this issue, but he or she is also an officer of the Court and will tell the court what is happening and the status of the contested matter.

The temporary director is, at least temporarily, a full fledged Board member and must be treated as such by the company. If there is doubt as to what the temporary director’s role or duties are, directors can ask the Court to clarify.

The Director doesn’t act for free; he or she is entitled to be paid, usually by the company (the court will likely order that the Director be paid).

Is It Worth It?

Yes, having a court appoint a temporary director and having to pay this person can not only seem like a long complicated process, but also one that entails undue expense, as well as some invasion into your company’s business by a Court.

But in situations where you know you will have an even number of directors, and where the matter is important enough, a temporary director can help ensure that important business is conducted when it needs to be done.

Call the West Palm Beach business litigation attorneys at Pike & Lustig today for questions about running your company legally.

Sources:

leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0700-0799/0720/Sections/0720.3033.html

floridabar.org/the-florida-bar-journal/directors-fiduciary-duties-increasing-focus-on-good-faith-and-independence/