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The majority of shareholders of Company incorporated in Cyprus, during an AGM, has elected a new non-executive Director to the Board.

He then receives a letter of appointment materializing service and compensation. Such letter of appointment contains a clause allowing the Company to terminate the agreement unilaterally (without any factual reason), and consequently forcing the Director to resign from the Board*.

Why is such clause presumably applicable? I see such clause as contrary to the corporate governance of the company:

  1. It allows the Company to supersede the vote of its shareholders: the shareholders voted for the Board, but the Company can immediately terminate the Board's appointment letters and hence dismiss the Directors from the Board.

  2. It makes the Board at the mercy of the CEO, as the later as the power to terminate their appointment letters and hence dismiss them.

Thanks in advance for your explanations,

(*) Clause seen in many different samples of LOA, such as ICSA (https://www.icsa.org.uk/download-resources/downloadt?fileId=5268)

  • You say he is appointed and then ask why they are allowed to terminate? Can you clear this up? – Putvi May 1 at 19:26
  • Welcome to Law! You may want to take the tour. In (2) you say that the board comes under control of the CEO and then in (3) that there is no CEO. Can you edit to make this clearer? – mkennedy May 1 at 22:32
  • Is this question intended to ask about English law? Because corporate law is not uniform across all countries. – ohwilleke Jun 2 at 23:42
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Your question seems to stem from a lack of understanding of what a corporation is. See What is the difference between a "Natural" person and an "Artificial" / "Legal" person?

The Company has the right to remove the board member - all directors serve at the pleasure of the company. The Company is its own legal person - it is not the shareholders, it is not the board and it is not the CEO.

The Company must, of necessity rely on agents to exercise that authority and those agents must act within the scope of the authority given to them by the Company. So which agents do have the authority?

  • The shareholders do within the limits and constraints of the constitution. Most corporate constitutions allow shareholders to pass resolutions at general meetings (both the annual and any special general meetings) which would cause the Company to terminate the board member.
  • The board probably doesn't. Most corporate constitutions do not give the board authority to terminate one of their members, however, the board could call a special general meeting and ask the shareholders to do so.
  • The CEO (or any other executive) certainly doesn't.

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