Board of Directors Flashcards
BoD General Functions
- oversees high level corporate activities
- sets policy
- hires and fires the corp’s CEO
- sets compensation levels for EDs
Director Number and Makeup
- corp can have as few as one director
- actual number must be specified in the corp’s by-laws or its CoF
- directors are not required to be a SH or a Texas resident
Director Selection
- Directors are elected at the special or annual meeting by a plurality votes cast
- not majority*
Director Removal
-may be removed at any time with or without cause unless CoF or bylaws provide otherwise
Director Replacement
- when vacancy, either directors or shareholders may fill vacancy
- director’s vacancy can be filled by majority vote of the remaining directors regardless of whether they constitute a quorum
- OR the director’s vacancy can be filled by majority SH vote at the annual meeting or a special meeting called for the specific purpose of replacing the director
Meeting Requirements
- physical presence is not required (email, etc) as long as members can communicate with each other during the meeting
- if directors are voting, voters must be properly identified and there must be and the directors must take an appropriate record of the vote
Board Action without meeting
- board may act without holding a meeting
- board may take action by written consent
- if action done by written consent, action must be unanimous unless by-laws or CoF express otherwise
Voting Requirements
- board action requires the presence of a quorum
- generally a majority unless the CoF or bylaws express a different quorum requirement
- quorum may never be less than 1/3 of members
- director voting by proxy is NOT allowed in TX
Director Dissent
- directors can incur liability for their board decisions
- to avoid liab must have: dissent memorialized
- disagreement must be properly recorded for the record. (promptly object to the holding of the meeting; ensure objection is in meeting minutes; not vote in favor of the action and deliver written notice of dissent to the presiding officer before meeting adjourns)
Committees
- board may take action through one or more committees
- board meeting may be exercised through committees, except for those actions that by law require that the action be taken by the board as a whole
- board as a whole may be liable for committee level board decisions
Duty of Care
- must do in good faith and in a manner that ordinarily prudent person would in a similar circumstance
- board oversight/supervision
- board decision making
Duty of Loyalty
- conflicting interest transactions
- usurpation of corporate opportunity
- competing with the corp
- directors salaries
BJR
- business judgment rule
- presumes that the board actions are carried out in good faith after reasonable investigation and for acceptable reasons
- high standard
- how you view board actions
Duty of Care Violations
- Oversight failure
- decision-making failure
Oversight failure (duty of care)
- board has a duty to oversee/monitor those aspects of the corp that would be expected of an ordinary prudent person under similar circumstances
- P must prove: (1) Director failed to carry out his oversight/monitoring duties using the requisite standard of care AND (2)failure was the proximate cause of the harm suffered
Decision-Making Failure (duty of care)
- occurs when the board as a whole considers a corp action and the decision turns out to be a bad one
- board liable if decison making process did not meet the requisite fiduciary duty standard of care
- directors not liable if acted in GF, after reasonable investigation and there was a RB for the decision
- directors can rely on others when making decisions as long as it’s warranted
Duty of loyalty
- requires the director place the corp’s financial interests ahead of their own
- courts are less deferential in the duty of loyalty cases bc of conflicting nature of transactions
Loyalty- conflicting interest transactions
-any transaction between a corp and a director
-must disclose the nature and existence of conflict to other board members (not confidential info)
-board members that aren’t conflicted must consider and decide through majority vote whether to go ahead with transaction
-if steps are followed, trans is safe harbored from challenge
(if challenged, the court will make an assessment whether trans was fair)
Usurp of Corp Opp (loyalty)
-must disclose this opportunity to directors and give the board an opportunity to accept or reject the opportunity
Competing with the Corp
- directors have an obligation not to engage in activities that directly compete with the corp
- directors may be held liable to the extent their competing actions have damaged the company’s profits
Salaries
- directors no salary but are paid for services as a director
- officer- salary amounts will be upheld unless they are so large as to constitute a waste of corp assets
