Board Required. Corporations are required to have a board of directors:
Each corporation shall have a board of directors. . . . the activities and affairs of a corporation shall be conducted and all corporate powers shall be exercised by or under the direction of the board. . . . the activities and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the board. (Corp. Code §7210; §300.)
Without a board, a corporation cannot conduct business, which means insurance coverage will lapse, maintenance ceases, rules enforcement ends, the association's corporate status lapses and lawsuits cannot be answered. This exposes each owner to potential liability. Resignations by all directors without appointing replacements may also be a breach of the resigning directors' fiduciary duties.
Management Companies. Managers are agents of the association and have no independent authority to oversee associations. Managers can try to persuade owners to volunteer, but managers have no authority to appoint directors. Without a board, the management company should immediately resign the account.
Receivers. If necessary, courts can appoint a receiver to oversee an association.
Incentives. Creating incentive, positive or negative, for owners to serve on the board is problematic. Associations cannot penalize owners for refusing to serve on boards. Nor should they reward owners for serving, such as waiving their homeowner dues, since this makes the directors "paid" professional directors and removes the protections given to volunteer directors.
Less Than a Quorum. If the bylaws call for five directors but only one or two are currently on the board, those directors cannot conduct any business except to appoint additional directors. Once a quorum of directors has been appointed, the board can then conduct business.
Special Election. If the board has less than a quorum and the sitting directors fail or refuse to appoint directors to fill empty seats, the membership can call a special meeting to elect new directors.
Recommendation: If an association cannot get enough volunteers to serve on the board, it should consider amending its bylaws to reduce the size of the board.
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