Removal of a Director or Officer in Closely Held Companies

Removing a corporate officer or director in a closely held company requires you to focus on who has authority and how the process must proceed. In Massachusetts, state corporate law and your company’s governing documents determine your options for removal. You can often remove a corporate officer or director, but you must follow the proper steps under applicable law and your governance documents.

At Berluti McLaughlin & Kutchin LLP (BMK), we guide business owners, executives, and closely held companies through internal disputes with practical and cost-effective strategies. We draw on decades of experience advising entrepreneurs and closely held businesses, helping clients resolve board authority disputes, implement clear corporate governance policies, and make decisions that support long-term success.

You can reach our lawyers by calling 617-557-3030.

How Do Closely Held Companies Work?

In general, a closely held company is a privately owned company in which a few individuals control both ownership and decision-making. Directors and officers may include:

Board of directors members;
Executive officers such as the President, Vice President, Chief Executive Officer (CEO), Chief Financial Officer (CFO), and Chief Operating Officer (COO);
Administrative officers like the Secretary and Treasurer; and
Operational leadership roles, such as Managing Directors.

In many closely held companies, the same people serve in overlapping roles. These officers and directors owe fiduciary duties to the company, and, in some cases, to each other. That duty requires decision-makers to act in the company’s best interests and creates liability when they fail to do so.

When Can You Remove a Director or Officer?

Massachusetts corporate law sets the baseline rules for removing a director or officer, while your company’s internal documents shape how those rules apply in practice. Your lawyer can help you understand how the law interacts with your governance documents.

What Are Common Corporate Governance Disputes?

Corporate governance disputes often arise when stakeholders disagree about authority, decision-making, or leadership. Board authority disputes may arise when individuals disagree over the scope of board authority.

Common disputes include:

Strategic disagreements,
Allegations of breach of fiduciary duty,
Deadlock among shareholders, and
Breakdowns in working relationships.

When these disputes materially affect operations or decision-making, removal of an officer or director may become necessary.

What Does the Law Allow?

Typically:

Shareholders may remove directors through a formal vote;
The board of directors may remove officers through a director vote; and
Courts may address disputes through litigation when conflicts escalate.

Courts often rely on the business judgment rule to resolve business disputes. That rule allows courts to defer to decisions directors make when those directors:

Act in good faith,
Gather reasonable information, and
Believe they are acting in the company’s best interests.

When you consider removing someone, evaluating how the decision supports the business and documenting those reasons are essential.

What Do the Company’s Governing Documents Allow?

Your company’s governing documents should provide detailed instructions for the removal process. Depending on what your articles of incorporation and bylaws say, the company may allow removal with or without cause, meaning you may or may not need a specific reason to remove the individual.

How Does the Removal Process Work?

The removal process depends on the circumstances, especially the degree of cooperation between the parties involved. When you remove an officer or director, you do not automatically take their ownership interest. Ownership rights are governed separately by shareholder agreements, operating agreements, or applicable law. As a result, removal often requires either a negotiated resolution or a formal process to address both leadership and ownership issues.

Informal or Negotiated Resolutions

Common informal or negotiated approaches to removal include:

Reaching a resignation agreement,
Restructuring ownership interests,
Mediation or facilitated negotiation, and
Role redefinition.

A corporate attorney can help you structure these solutions so they align with your corporate governance requirements and business goals.

Formal Company Removal Process

Formal removal typically involves:

Reviewing governing documents;
Calling a meeting of the board of directors and providing notice of the proposed removal;
Holding a board vote on whether to remove the officer;
Adopting a corporate resolution, recording the board’s decision in writing, and stating the effective date of removal; and
Updating corporate records and filings.

You should also tie up loose ends, such as issuing final compensation or benefits as required.

Formal Director Removal by Litigation Process

When the company cannot reach an agreement, the dispute may move into court. Your attorneys can guide you through each step of the director removal litigation process, which typically involves:

Filing a complaint. A shareholder, director, or other authorized party files a lawsuit alleging grounds for removal.
Requesting injunctive relief. A party may ask the court to temporarily restrict the director or officer from acting on behalf of the company while the case proceeds.
Conducting discovery. Each side gathers evidence, including financial records, communications, and testimony, to support their position.
Presenting legal arguments. The parties present arguments to a judge about corporate law, fiduciary duty, and whether the business judgment rule protects the challenged conduct.
Court decision or negotiated resolution. The court may order removal, deny the request, or encourage the parties to resolve the dispute through settlement.

This process can also involve related claims, such as disputes over ownership rights, valuation, or control of the company.

Practicing Attorneys

John McLaughlin

Kerry Northup

Frequently Asked Questions (FAQs)

Can Shareholders Remove a Director?

Yes, shareholders can remove a director through a shareholder vote, which is a formal vote by the owners. The company’s articles of incorporation and bylaws determine how the specific process works.

What Are the Grounds to Remove a Corporate Officer?

Your company may remove a corporate officer for business or governance reasons. When you need cause to remove someone, common grounds include breach of fiduciary duty, failure to perform responsibilities, misconduct or policy violations, and strategic leadership changes.

What Is the Legal Process for Removing a Corporate Officer?

The legal process for removing a corporate officer typically requires a meeting and a vote by the board of directors, along with proper documentation.

Who Has the Authority to Remove a Corporate Officer in a Company?

In most corporations, the board of directors holds the authority to remove a corporate officer through a board vote. Shareholders may have the power to remove officers in some instances, depending on the governing documents or corporate structure.

Supporting Your Business Through Governance Decisions

Removing a corporate officer or director is a significant decision that affects leadership and operations. When you understand your authority and follow a structured process, you can take action in a way that supports your company’s stability and long-term goals.

At BMK, we work closely with business owners and closely held companies across Massachusetts to navigate corporate governance disputes. Our firm provides practical, business-focused counsel designed to resolve disputes efficiently while preserving operational control and stability.

Contact us to discuss your situation and work with our Boston business law attorneys to develop a strategy aligned with your business objectives.

Legal References Used to Inform This Page

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