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.

What triggers the departure of a director or officer in a closely held company?

In a closely held company, a director or officer may depart through voluntary resignation, retirement, removal by shareholders, or removal by the board, depending on the specific authority granted under the company’s governing documents and Massachusetts corporate law. Triggering events in closely held businesses often include shareholder disputes, a loss of confidence in leadership, a strategic disagreement about the direction of the company, or the sale or reorganization of the business. The process for removing a director or officer, and the legal consequences that follow, depend heavily on what the company’s charter, bylaws, operating agreement, or shareholder agreement provides.

How can a director be removed in a Massachusetts closely held company?

Under Massachusetts General Laws Chapter 156D, shareholders generally have the power to remove a director with or without cause, unless the company’s certificate of incorporation provides otherwise. The board may also have removal authority in certain circumstances. However, the specific mechanics, including required vote thresholds, notice requirements, and whether removal requires cause, are governed first by the company’s own governing documents. In closely held companies, removal of a director who is also a shareholder and employee can trigger related claims including breach of fiduciary duty or minority shareholder oppression, making it essential to seek legal counsel before initiating the process.

What are fiduciary duties of directors and officers in Massachusetts?

Directors and officers of Massachusetts corporations owe fiduciary duties of care and loyalty to the company and, in closely held companies, sometimes to each other as well. The duty of care requires decision-makers to act on an informed basis after reasonable inquiry. The duty of loyalty prohibits self-dealing and requires that directors put the company’s interests ahead of their own when conflicts arise. Violations of these duties, such as approving transactions that benefit a director personally at the company’s expense, can give rise to personal liability and are a common source of litigation in closely held business disputes.

What legal risks arise when removing an officer or director in a closely held business?

Removing a director or officer from a closely held company can expose the remaining owners to claims of breach of fiduciary duty, wrongful termination if the departed individual also served as an employee, minority shareholder oppression if the removal was designed to freeze out a co-owner, and breach of any contractual rights guaranteed by an employment agreement or shareholder agreement. In Massachusetts, courts scrutinize the conduct of majority owners in closely held companies closely, and actions that appear legitimate in a public company context may be found oppressive when carried out against a co-owner who had reasonable expectations of continued participation in the business. Engaging experienced corporate counsel before taking action is critical to managing this exposure.

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 

To ensure the accuracy and clarity of this page, we referenced official legal resources during the content development process:

You May Also Like