Illinois corporations are governed by the Illinois Corporation Act (805 ILCS 5/1, et seq.) and by the company’s bylaws. In general, the governing principle of the management and control of the corporation is vested in the board of directors, which has a high duty of loyalty to the shareholders of the corporation. The board of directors has a fiduciary duty to uphold the best interests of the corporation and its owners.
It is not uncommon that the boards of directors of corporations become disenchanted with the president or other officers of a corporation. In a common fact setting, a special meeting of the board of directors is called for the sole purpose of removing the president of the corporation, who also serves as treasurer. There’s not much an officer can do to ward off such a move at the board level. The president then files the lawsuit against the board of directors and the corporation claiming that the resolution by the board removing this officer is a waste of corporate assets.
In that case the court would look to construe the corporation’s bylaws and apply the general rules of contracts, while addressing the Illinois Business Corporation Act.
The removal of an officer by the board of directors is legally sufficient if the procedures outlined in the company’s bylaws are followed and the corporation’s best interests are preserved by the removal. There’s nothing on its face that is illegal about removing an officer as long as it is done procedurally correct and does not otherwise violate the law.
The only test to be done by the company’s board and the court is the application of the business-judgment rule, which protects the directors and officers of a corporation from liability for decisions within their authority and made in good faith, uninfluenced by any consideration other than the honest belief that the action to remove, for example, was done in the best interests of the company.
The general business-judgment rule would protect the board of directors and corporate officers from liability if there was a showing of good faith. The protection would be available in the absence of any showing of fraud, illegal conduct or some irrational business judgment.
That issue — and in fact every action taken by the board — must be weighed to be appropriate and justified. Those facts must be determined by a fact finder and cases contesting the propriety of a corporation’s officer being removed may not be disposed by summary judgment unless there was overwhelming evidence to allow such a court ruling.
When the board of directors issues a resolution that is challenged as shareholder oppression or a breach of fiduciary duty, the application of the business-judgment rule requires the trial court to make credibility determinations and to choose among competing inferences that would not be subject to a summary judgment order. The key for any board of directors is to make the best interests of the company the highest priority. The board will be protected from personal liability as long as that principle is followed and the business-judgment rule is supportive.
Kreisman Law Offices has been handling corporation and business formations, business dispute matters, commercial litigation and catastrophic injury cases for individuals, families and businesses for more than 38 years in and around Chicago, Cook County and its surrounding areas, including Round Lake Beach, Crystal Lake, Steger, South Holland, South Chicago Heights, South Barrington, Park Forest, Prospect Heights, Western Springs, Willow Springs, Wilmette, Worth, Schaumburg, Sauk Village, Roselle, Rolling Meadows, LaGrange Park, Justice, Homewood, Hoffman Estates and Olympia Fields, Ill.
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