1

If a person who is already a qualified high level executive (but not C-level) at a corporation inherits controlling interest, how can that person become CEO and board chair?

Would it have to be a stipulation in the by-laws?

Are there State by State laws?

2
  • 1
    Controlling shareholder elects board, board hires CEO. Dec 30, 2022 at 7:04
  • Thanks, George. Is from corp's by-laws, State law, or federal law?
    – Doug Null
    Dec 30, 2022 at 13:32

1 Answer 1

2

Each state has its own law governing the internal organization of corporations. For this purpose, the law of a place of incorporation and not necessarily the place where the corporation does business controls. For example, in the case of a California based business incorporated in Delaware, Delaware law would control.

Pursuant to those state laws, a corporation adopts articles of incorporation and bylaws that further govern its internal affairs.

Typically, these would provide that an owner of a sufficient percentage of shares such as a controlling interest can call a special shareholders meeting to elect new directors. At the meeting the controlling owner could elect a slate of loyal directors including the controlling owner, who would elect this controlling owner as chair of the board and then hire the controlling owner as CEO.

In the case of publicly held companies, there is an additional level of public disclosure involved that is coordinated by the Securities and Exchange Commission (SEC), mostly under the 1934 Securities Exchange Act and related regulations.

Typically, there would have to be a disclosure of the new owner of 5% or more of the company, and then a second disclosure of a proxy bid in connection with the special shareholder's meeting election. But this would not be required in a privately held company.

2
  • Excellent and comprehensive answer. But "5%"? Not >= 51% ?
    – Doug Null
    Dec 31, 2022 at 1:29
  • @DougNull The SEC requires disclosures of all ownership interests in publicly held companies in excess of 5%.
    – ohwilleke
    Dec 31, 2022 at 2:44

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .