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For statutory purposes, a director is "elected" only when chosen by vote of members entitled to vote for directors. Directors chosen by any other method are either "appointed" or "designated". As this section indicates, an appointed director is one chosen to be a director by some person designated for the purpose in the articles or bylaws. If corporate governance documents recite that a director shall be "elected" by the corporation's national organization, such a director is not "elected" for purposes of this statute, but appointed. A designated director is one who becomes a director by operation of the articles or bylaws without discretion being exercised by any person. For example, the articles might designate that the elected leader of some other organization be a director of the corporation, or that the minister of a particular church be such a director. Once these positions are filled, the persons filling them would become designated directors without further action on the part of anyone.

Section 33-31-805. Terms of directors generally.

(a) The articles or bylaws may specify the terms of directors. Except for designated or appointed directors, the terms of directors may not exceed five years. In the absence of a term specified in the articles or bylaws, the term of each director is one year. Directors may be elected for successive terms.

(b) A decrease in the number of directors or term of office does not shorten an incumbent director's term.

(c) Except as provided in the articles or bylaws:

(1) the term of a director filling a vacancy in the office of a director elected by members expires at the next election of directors by members; and

(2) the term of a director filling another vacancy expires at the end of the unexpired term that such director is filling.

(d) Despite the expiration of a director's term, the director continues to serve until the director's successor is elected, designated or appointed, and qualifies, or until there is a decrease in the number of directors.
OFFICIAL COMMENT

Section 8.04(a) allows the initial directors and directors elected by the members or the board to serve for up to five-year terms.

The members' right to vote is illusory unless it can have an impact on the board. In the case of self-perpetuating boards, five-year terms allow continuity and also provide a graceful way of removing directors who may otherwise think they have life tenure. See section 8.04(b) which allows a self-perpetuating board to elect successor directors.

In the absence of a contrary article or bylaw provision, the term of directors is one year.

The term of a director filling a vacancy of a director elected by members expires at the next election of directors by members. This election may be at the annual meeting or by written ballot. See sections 7.01 and 7.08. The members may elect the director filling the vacancy for the remainder of the unexpired term.

The term of a director filling the vacancy of a designated or appointed director or filling a vacancy on a self-perpetuating board is for the unexpired term of the director being replaced. See section 8.05(c). Section 8.11 sets forth the ways in which vacancies can be filled.

Section 8.05(a) prevents chaos by continuing directors in office until their successors are elected, designated, or appointed, and qualify. Even if successor directors are not elected, or if elected do not qualify, continuity on the board will be provided as the incumbent directors continue until their successors take office.
SOUTH CAROLINA REPORTERS' COMMENTS

Previously applicable statutory law, found at Section 33-8-105 of the South Carolina Business Corporation Act, limited directors to terms of a single year, except for members of staggered boards. Present law extends the permissible term to five years, and imposes no limits on appointed or designated directors' terms.

Subsections (b) and (d) are identical to the analogous subsections of Section 33-8-105, and thus represent no change from prior law. Subsection (c) differs from Section 33-8-105(c) and (d) in making its provisions variable in the articles of incorporation or bylaws.

The word "may" in the first sentence of subsection (a) has replaced the word "must" in the Model Act, for purposes of clarification.

Section 33-31-806. Staggered terms for directors.

The articles or bylaws may provide for staggering the terms of directors by dividing the total number of directors into groups. The terms of office of the several groups need not be uniform.
OFFICIAL COMMENT

Nonprofit corporations need to attract and keep qualified directors and provide continuity and experience on their boards of directors. Sections 8.05 and 8.06 address this need by allowing directors to serve staggered terms of up to five years and not imposing a limitation on their reelection.

Previously applicable statutory law was found at Section 33-8-106 of the South Carolina Business Corporation Act, which permitted the staggering of boards into halves or thirds only, with groups as close to equal as possible and serving uniform terms. Section 33-31-106 does not require any uniformity.

Section 33-31-807. Resignation of directors.

(a) A director may resign at any time by delivering written notice to the board of directors, its presiding officer, or to the president or secretary.

(b) A resignation is effective when the notice is effective unless the notice specifies a later effective date. If a resignation is made effective at a later date, the board may fill the pending vacancy before the effective date if the board provides that the successor does not take office until the effective date.
OFFICIAL COMMENT

A director may resign at anytime by delivering written notice as set forth in section 8.07. The notice may be effective when delivered, unless it specifies a later effective date. Section 1.41 governs the effective date of a notice. In resigning, directors must meet their obligations under section 8.30.

Under appropriate circumstances a court may find that an oral resignation combined with acts or omissions evidencing an intent to resign results in an effective resignation.

If a director elected by the members resigns or ceases to serve as a director, the vacancy may be filled by the members or the directors.
SOUTH CAROLINA REPORTERS' COMMENTS

This section represents no change from the previously applicable statute, Section 33-8-107 of the South Carolina Business Corporation Act, except for the addition of the second sentence of subsection (b).

Section 33-31-808. Removal of directors elected by members or directors.

(a) The members may remove one or more directors elected by them without cause.

(b) If a director is elected by a class, chapter, or other organizational unit or by region or other geographic grouping, the director may be removed only by the members of that class, chapter, unit, or grouping.

(d) If cumulative voting is authorized, a director may not be removed if the number of votes, or if the director was elected by a class, chapter, unit or grouping of members, the number of votes of that class, chapter, unit or grouping, sufficient to elect the director under cumulative voting is voted against the director's removal.

(e) A director elected by members may be removed by the members only at a meeting called for the purpose of removing the director and the meeting notice must state that the purpose, or one of the purposes, of the meeting is removal of the director.

(f) In computing whether a director is protected from removal under subsections (b) through (d), it should be assumed that the votes against removal are cast in an election for the number of directors of the class to which the director to be removed belonged on the date of that director's election.

(g) An entire board of directors may be removed under subsections (a) through (e).

(h) A director elected by the board may be removed without cause by the vote of two-thirds of the directors then in office or such greater number as is set forth in the articles or bylaws. However, a director elected by the board to fill the vacancy of a director elected by the members may be removed without cause by the members, but not the board.

(i) If, at the beginning of a director's term, the articles or bylaws provide that the director may be removed for reasons set forth in the articles or bylaws, the board may remove the director for such reasons. The director may be removed only if a majority of the directors then in office vote for the removal.

(j) The articles or bylaws of a religious corporation may:

(1) limit the application of this section; and

(2) set forth the vote and procedures by which the board or any person may remove with or without cause a director elected by the members or the board.

(k) For purposes of this section, `members' refers to members entitled to vote for directors.

1. Removal of Directors Elected by Members

The members are authorized to remove directors elected by them without cause. While cause is not required, the removal may only take place at a meeting and may not take place by written consent or written ballot. A notice of the meeting must state that the purpose or one of the purposes is removal of the director. The Model Act does not require a director to be removed for cause as the members who elected the director, rather than a court, should determine whether the members wish to remove the director.

A director may only be removed if the number of votes cast to remove the director would be sufficient to elect the director at a meeting to elect directors. Normally this would require a majority of the votes cast at a meeting at which a quorum is present. If the articles or bylaws require a higher vote for election of a director, that higher vote is required to remove the director. If a director was elected by a class or some other grouping of members, the votes cast within that class or grouping to remove the director must also be sufficient to have elected the director at a meeting to elect directors.

If cumulative voting is authorized, even if a director was not elected by cumulative voting, the director may not be removed if there are sufficient votes cast against the director's removal to have elected the director under cumulative voting. In doing this calculation it should be assumed that those voting for and against removal are voting in the most efficient fashion possible for removal or retention.

In any vote to remove a director, the computation of whether the director is removed should be based on the number of directors of the same class elected at the time of the election of the director whose removal is being sought. For example, if there is a vote to remove director Ratner and Ratner was elected by cumulative voting with four other directors, then the number of votes necessary to prevent Ratner form being removed is equal to the number of votes necessary to elect Ratner in an election in which five directors are elected.

2. Removal of Directors Elected by the Board

If a board of directors is self-perpetuating or if it elects some of but not all of its members, it may remove the directors it has elected without cause by a vote of two-thirds of the directors then in office. Of course, the directors in removing a fellow director must meet the duty of care and duty of loyalty set forth in section 8.30. See section 8.22 for applicable notice requirements.

3. Removal of Directors for Failing to Attend Meetings

Some nonprofit corporations, particularly those with large boards of directors, may find that some of their directors fail to attend meetings on a regular basis. Section 8.08(i) allows the articles or bylaws to authorize the board to remove any director for failing to attend a specified number of meetings. The exact number of meetings must be specified in the articles or bylaws at the time the director commences serving the term during which he or she is removed as a director. An article or bylaw provision adopted during the term of a director has no effect on that director until the director commences a new term. Removal requires a vote of a majority of the directors in office.

4. Religious Corporations

Religious corporations should not be bound by secular concepts regarding removal of directors, but should have flexibility in setting removal procedures. Subdivision (j) allows the articles or bylaws of a religious corporation to limit the application of section 8.08 and provide alternative ways of removing directors or prohibiting their removal by members or the board. The provisions of section 8.08 apply to religious corporations unless the corporation's articles or bylaws set forth different procedures or rules.
SOUTH CAROLINA REPORTERS' COMMENTS

Those portions of Section 33-31-108 relating to the removal of directors elected by members of a corporation are similar to the provisions of formerly applicable Section 33-8-108 of the South Carolina Business Corporation Act. Major differences, and therefore changes from prior law, include an absolute right in the members to remove directors without cause; the provisions of subsection (c), which would have the effect of protecting directors from being removed at a scantily attended meeting; and the special provisions of subsection (f).

Prior law had no counterpart to the provisions relating to the removal of directors elected by the board or the provisions of subsection (i) or (j).

Subsection (i) has been broadened from the text proposed by the Model Act to permit corporations flexibility in including in articles or bylaws mandatory responsibilities of directors, failure of compliance with which would constitute grounds for termination. The Model Act proposed in this regard only regular attendance at meetings.

(a) A designated director may be removed by an amendment to the articles or bylaws deleting or changing the designation.

(b) Appointed directors:

(1) Except as otherwise provided in the articles or bylaws, an appointed director may be removed without cause by the person appointing the director.

(2) The person removing the director shall do so by giving written notice of the removal to the director and either the presiding officer of the board or the corporation's president or secretary.

(3) A removal is effective when the notice is effective unless the notice specifies a future effective date.
OFFICIAL COMMENT

1. Removal of Designated Directors

Designated directors hold office as a result of an article or bylaw provision designating them individually or in some representative capacity to serve as directors. Members and directors may not vote to remove designated directors. They may only be removed if the article or bylaw provision designating them is deleted or changed so that they are no longer designated directors. See Chapter 10A and B. Also see section 10.30 which allows any specified person to prevent an amendment to the articles or bylaws.

Designated directors may be removed in a judicial proceeding pursuant to section 8.10.

2. Removal of Appointed Directors

Any person authorized to appoint a director may remove that director without cause except as otherwise provided in the articles or bylaws. The articles or bylaws may limit or completely restrict the right of the appointing person to remove the director. The approval of the appointing person may be required for an amendment to the articles or bylaws, thereby insuring that a limitation on such person's ability to remove a director will not be added to the articles or bylaws without consent of such person. See section 10.30.

The appointing person may remove his or her appointee by giving written notice pursuant to the procedures set forth in section 8.09(b).

Appointed directors may be removed in a judicial proceeding pursuant to section 8.10.
SOUTH CAROLINA REPORTERS' COMMENTS

This section had no counterpart under prior statutory law, which made no provision for any method of choosing directors other than election.

(a) The circuit court of the county where a corporation's principal office in this State, or, if none in this State, its registered office, is located may remove any director of the corporation from office in a proceeding commenced either by the corporation, its members holding at least five percent of the voting power of any class to elect directors, or the Attorney General in the case of a public benefit corporation, if the court finds that:

(1) the director engaged in fraudulent or dishonest conduct, or gross abuse of authority or discretion, with respect to the corporation, or a final judgment has been entered finding that the director has violated a duty set forth in Sections 33-31-830 through 33-31-833; and

(2) removal is in the best interest of the corporation.

(b) The court that removes a director may bar the director from serving on the board for a period prescribed by the court.

(c) If members or the Attorney General commence a proceeding under subsection (a), the corporation must be made a party defendant.

(d) If a public benefit corporation or its members commence a proceeding under subsection (a), they shall give the Attorney General written notice of the proceeding.

(e) The articles or bylaws of a religious corporation may limit or prohibit the application of this section.
OFFICIAL COMMENT

Section 8.10 authorizes members holding 10 percent or more of the voting power of any class to sue to remove a director. The corporation must be made a party to the action. Members holding less than 10 percent of the voting power of a class may bring a derivative suit to remove a director by complying with the provisions of section 6.30.

Section 8.10 also sets forth the grounds for removing an elected, designated or appointed director. A court must find that the director engaged in fraudulent or dishonest conduct, or gross abuse of authority or discretion, or that a final judgment has been entered finding that the director has violated a duty set forth in sections 8.30-8.33, or if section 8.13 has been adopted, that its provisions have been violated. In each case the court also must find that removal is in the best interest of the corporation.

A court may specify a period during which the removed director may not serve on the board or may impose conditions to that person becoming a director. Alternatively the court may bar a person who has been removed as a director from ever serving on the board.

Section 8.10 allows removal of directors who have engaged in wrongful activity. Absent such wrongful conduct, it should not be used for internal policy disputes or as part of a fight for control.

Subsection (e) allows the articles or bylaws of a religious corporation to prohibit a court from removing corporate directors. Moreover, while subsection (a) authorizes the attorney general to bring an action to remove a director of a public benefit corporation, no such authorization is set forth in regard to mutual benefit or religious corporations. This is because the attorney general has broad oversight powers over public benefit corporations, but a much more limited role in regard to mutual benefit and religious corporations.
SOUTH CAROLINA REPORTERS' COMMENTS

Formerly applicable statutory law was found at Section 33-8-109 of the South Carolina Business Corporation Act. The present section changes prior law in several respects. The Attorney General is given standing to bring actions in respect of public benefit corporations. A final judgment that a director has violated a duty under Sections 33-31-830 through 33-31-833 is added to subsection (a)(1). Finally, subsections (d) and (e) are new.

The percentage of a class of members entitled to vote for directors who may bring an action to remove a director has been lowered from ten percent, as proposed by the Model Act, to five percent, to be consistent with the analogous South Carolina Business Corporation Act provision, found in Section 33-8-109.

Section 33-31-811. Vacancy on board.

(a) Unless the articles or bylaws provide otherwise, and except as provided in subsections (b) and (c), if a vacancy occurs on a board of directors, including a vacancy resulting from an increase in the number of directors:

(1) the members, if any, may fill the vacancy; if the vacant office was held by a director elected by a class, chapter, or other organizational unit or by region or other geographic grouping, only members of the class, chapter, unit, or grouping are entitled to vote to fill the vacancy if it is filled by the members;

(2) the board of directors may fill the vacancy; or

(3) if the directors remaining in office constitute fewer than a quorum of the board, they may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office.

(c) If a vacant office was held by a designated director, the vacancy must be filled as provided in the articles or bylaws. In the absence of an applicable article or bylaw provision, the vacancy may not be filled by the board.

(d) A vacancy that will occur at a specific later date, by reason of a resignation effective at a later date under Section 33-31-807(b) or otherwise, may be filled before the vacancy occurs but the new director may not take office until the vacancy occurs.
OFFICIAL COMMENT

Section 8.11 sets forth the procedures for filling vacancies of elected, designated, or appointed directors and vacancies resulting from an increase in the authorized number of directors.

If a director elected by the members ceases to be a director, the vacancy may be filled by the members or the board in the absence of a contrary article or bylaw provision. Similarly vacancies arising when directors named in the original articles cease to be directors and vacancies resulting from an increase in the number of directors may be filled by the members or the board in the absence of a contrary article or bylaw provision.

Where, however, a vacancy occurs in an office held by an appointed director, only the person who appointed the director may fill the vacancy in the absence of an article or bylaw provision providing some other method of filling the vacancy. The underlying assumption is that the person who appoints the director should have the authority to pick the director's successor unless some other approach was considered and set forth in the articles or bylaws.

If the holder of a particular office is designated as a director of a nonprofit corporation and that person dies or resigns from office, a vacancy is created. In the absence of a contrary articles or bylaw provision, the person who succeeds to that office automatically becomes a director of the nonprofit corporation. For example, assume the dean of each law school in Texas is designated as a director of the Texas Law School Association and one dean resigns. The successor dean would automatically become a director of the Texas Law School Association.

Similarly, assume the executive director of a nonprofit corporation is designated as a director of the corporation. That person ceases being a director if he or she is fired as executive director. The new executive director automatically become a director of the corporation.

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