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Our (Australian Incorporated) company is growing and we have been suggested to hire an influential individual to be the Chairman of our board. He has a lot of connections, experience, old , mature and will be beneficial to our company's growth.

He does not hold any shares of the company and only appointed by the shareholders/directors. Me and 2 other guys still hold controlling shares (55%) of the company

Just a scenario.... say things get bitter between us, and the Chairman wants to assert his power for vengeful purpose. What authority does he have as the chairman of the board to make our lives or board meetings difficult?

And what do we do if such a thing occur?

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  • How "controlling" is controlling? 51% or enough for a supermajority (67%)? Aug 29 '21 at 13:00
  • 55% to be exact Aug 29 '21 at 13:01
  • What jurisdiction are you in? Is your company incorporated there Aug 29 '21 at 13:03
  • Company incorporated in Australia Aug 29 '21 at 13:20
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What powers does the company give the chair?

Companies in operate in accordance with the Replaceable Rules in the Corporations Act or a constitution or both. The Chair can only do what these allow.

A company can adopt a constitution before or after registration. If it is adopted before registration, each member must agree (in writing) to the terms of the constitution. If a constitution is adopted after registration, the company must pass a special resolution to adopt the constitution.

Under the Replaceable Rules, the chair has the powers of a director (because they are one). This means they can manage the company and do anything that the company can do except for things the company can only do at a general meeting. For example, the directors may issue shares, borrow money and issue debentures.

They also have the ability to chair directors meetings they attend. If they are not present at a meeting, the directors that are present must choose one of them to act as chair.

Any director can be removed by resignation or by resolution of the company at a shareholder’s meeting.

Under a constitution, anything goes subject to compliance with the law.

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The chair has to win the support of the directors, and if the chair doesn't, the chair can be ousted from that position by a simple majority vote of the directors with little or no notice.

The chair's ouster is likely to happen if a chair doesn't have the support of a majority of the shareholders even if the directors initially support the chair, since the directors serve at the sufferance of the shareholders and could be removed if a majority of shareholders (especially in a closely held company) were dissatisfied with the directors' performance.

The chair is mostly a symbolic role as first among equals on the board of directors, unless a contrary contract is reached with this person. So, there isn't much power to assert vengefully. Even the chair's parliamentary procedure rulings could be overruled by an appropriate majority of the board of directors.

Normally, as a matter of custom and practice, a chair doesn't get appointed unless the nominee has the nearly unanimous support of the directors and shareholders, at the outset, at least.

In ordinary circumstances, almost all of a chair's power is "soft power" deriving from the fact that everyone on the board and in the senior management team respects the chair's judgment, not "hard power" arising from the chair's legal rights.

Frequently, the chair is a retired CEO, a sitting CEO, or is one of the largest shareholders of the company (or a representative of that shareholder). An outside chair who is a non-shareholder would be unusual and chosen only with the full backing of the directors and shareholders to clean house in a failing company in most cases.

A bad CEO or corporate president appointment is a much bigger deal, because usually a CEO will have an employment contract with golden parachute terms and will have much more formal authority to abuse.

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