Chapter 40 Flashcards
Role of Directors
- All policy making decisions
- Carry out routine corporate business
- Select and remove officers
- Determine capital structure of the corporation
- Declare dividends
- Each director has 1 vote/majority vote
Are directors agents?
No, Because no one individual director can actual bind the corporation to anything
Are directors trustees?
No, Trustees hold title to property for the use/benefit of another. That’s not what directors are doing
Inside Director
A person on a corporation’s board of directors who is also an officer of the corporation
Outside Director
A person on a corporation’s board of directors who does not hold a management position in the corporation
Meetings and Voting Rights of Directors
The dates of regular meetings are usually scheduled by the articles, bylaws, or board resolution
Quorum
The number of member of a decision-making body that must be present before business may be transacted
Corporate Officers and Executives
- hired by the board
*at a minimum most corporations have a President, 1 or more VP, secretary and treasurer - carry out duties stated in the Bylaws
- corporate and managerial officers are agents
- are employees
- Board can remove an officer with or without cause
Duties and liability of directors and officers
Directors and Officers are fiduciaries of the corporation and therefore the duties are those of a fiduciary
Duty of Care
Requires directors/officers:
1. Act in good faith
2. Act as a reasonable prudent director/officer would under the circumstances
3. Act in the best interest of the corporation
So basically (under duty of care) an Officer/Director should…
be attending meetings (that’s how they are informed about decisions they need to make, what is going on in the business, etc.), reasonably supervise work given out, if you disagree with the majority vote – if I am a dissenting board member – get it on the record that you disagreed (by the secretary taking notes)
Business Judgement Rule
Defense to alleged violation by directors and officers of duty of care.
Directors and officers do NOT insure business success (the defense argues that they made sound business decisions even if it didn’t work out the way it was intended)
Business Judgement Rule applies if: Director/Officer….
- took reasonable steps to be informed on the matter
- had a rational basis for the decision AND
- no conflict of interest existed between personal interest and interest of the corporation
If the defense is successful, then the director or officer has not breached the duty of care.
BJR is usually successful unless:
there is evidence of bad faith, fraud, or a clear breach of fiduciary duties.
Duty of Loyalty
“Duty of faithfulness to one’s obligations and duties”
* think of the company before own personal interests
* refrain from self-dealings
* not use corporate funds or information for personal gain
6 examples of failure in duty of loyalty:
- Competing with the corporation
- Usurping (taking personal advantage of) a corporate opportunity
- Pursuing an interest that conflicts with that of the corporation
- Using information that is not available to the public to make a profit trading securities (insider trading)
- Authorizing a corporate transaction that is detrimental to minority shareholders
- Selling control over the corporation
Conflicts of Interests
- many can exist with directors
- make full disclosure
- abstain from voting on matters with a conflict
I own an office building, I am an external director. We as a corporation are looking for new office space. What should I do?
I need to tell the board that I own the building we are considering. And then when it is time to vote, I should not vote.
Liability of Directors/Officers
- can be liable for negligence
- can be criminally responsible for their own crimes and crimes committed by employees under their supervision
- can be sued by SH in a shareholders derivative suit (Sugarman is an example of this)
- can be held personally liable under many statutes
Role of Shareholders
- Are owners of the corporation
- Do not own personal title to corporate property (the corporation owns everything)
- Do appoint the board of directors
- Do not, as SH, have daily management responsibilities (if it is a close corporation, you may have management responsibilities)
- Majority SH owe a fiduciary duty to minority SH
Powers of Shareholders (Shareholder approval is normally required to…)
- Amend the articles of incorporation or bylaws
- Sell all or substantially all of the corporation’s assets
- Conduct a merger/dissolve the corporation
Power to: vote/elect/remove members of the BOD
What do you have to do if you want to hold a special meeting?
10-60 days notice (no more, no less)
Resolutions
corporate resolution that says what the decision what on the corporate business matter. If I have one stock, I have one vote
Quorum
more than 50% are present
