Directors

Question 1

Directors

Answer 1

Minimum is 1

Initially the number will be set in the certificate but then can be found in either the certificate or the bylaws

Question 2

Who elects the board

Answer 2

SH at the annual meeting - each board member will be elected each year UNLESS:

classified board, only a certain portion of directors will be up for election each year

Question 3

Removal of board members

Answer 3

SH can remove board members before their term expires by a majority of SH entitled to vote

With or without cause

If classified board- need cause to remove

Question 4

Who fills vacancy on the board

Answer 4

either the SH or the remaining board members

Question 5

Power of individual board members

Answer 5

nothing- they must act as a group of through a designated board committee

Question 6

How the board can take action?

Answer 6

1. unanimous written consent to do something

2. a meeting that satisfies quorum and voting requirements - can be a conference call

Question 7

*Notice of Board meetings

Answer 7

Regular annual meeting: no notice required

Special meeting: notice required that states the date, time and place - does not require for it to state the purpose

Failure to give proper notice: what ever happened at the meeting is voidable unless notice is waived

Question 8

*Email notice of Board Meetings

Answer 8

okay if the person receiving the notice has authorized this form of notice

Question 9

can directors vote by proxy?

Answer 9

No, the directors owe the corporation nondelegable fiduciary duties

Question 10

Quorum for Board

Answer 10

unless the bylaws state otherwise, a majority of all directors

Quorum will be broken if a board member leaves and then there is less than the majority needed

Question 11

Board Voting

Answer 11

once a quorum is established, for the board to act/ pass a resolution a majority of votes of those present is needed

Question 12

Big business decisions

Answer 12

made by the board

Question 13

Board Committees

Answer 13

Large boards typically create committees that focus on individual subjects

can delegate management power to the committees

cannot have a committee: change the bylaws, select officers, or recommend a fundamental corporate change to SH

Question 14

*Duty of Care

Answer 14

A director must act in good faith and exercise ordinary care and prudence

Burden will be on the P to prove that it was breached

Question 15

Nonfeasance (the director does nothing)

Answer 15

• will only be liable if the breach caused a loss to the corporation
• breach + causation -> damages
• causation is hard to prove here

Will be a breach of duty of care

Question 16

Misfeasance

Answer 16

the board does something that hurts the corporation

• causation will be clear here
• action must not be subject to the BJR protection

Question 17

*Business Judgment Rule (BJR)

Answer 17

A court will not second-guess a business decision if it was made in good faith, was informed, and had a rational basis.

Just a prudent person standard.

The burden will be on the P to show that the BJR is not met

Question 18

*Duty of Loyalty

Answer 18

director must act in good faith and with a reasonable belief that her act is in the corporations best interest

BJR will never apply here if there is a conflict of interest

Question 19

*Self-Dealing

Answer 19

Breach of duty of loyalty

a deal between the corporation and one of the directors or close relative or business partner of the director

Interested director transactions will be set aside unless the director shows:

1. the deal was fair to the corporation; OR
2. her material interests were disclosed or known and the deal was approved in good faith by either:
   a. SH vote
   b. majority of disinterested directors even if they are
   less than a quorum

Question 20

Board Compensation

Answer 20

Can be set by the board as long as it is reasonable.

If pay is excessive it is a waste of corporate assets and a breach of the duty of loyalty

Question 21

Competing Ventures (Duty of Loyalty)

Answer 21

Director cannot compete without approval of a disinterested majority of directors

Remedy: constructive trust on profits of the competing corporation

Question 22

Corporate Opportunity (Duty of Loyalty)

Answer 22

Director cannot usurp a corporate opportunity. The director cannot take an opportunity of the corporation until:

1. She tells the board; and
2. waits for the board to reject the opportunity

Remedy: constructive trust, either corp gets to buy the opportunity or will get the profits from the opportunity

Question 23

Can a corporation loan money to a director?

Answer 23

Generally no unless, it is reasonably expected to benefit the corporation

example: paying for board member to get his MBA

Question 24

Which directors can be held liable?

Answer 24

A director is presumed to have concurred with the board action unless her dissent or abstention is noted in writing in corporate records

In writing:

1. put in the meeting minutes
2. sending a note to the corporate secretary at the meeting; or
3. sending a registered letter to the corporate secretary right after the meeting

Oral dissent by itself is not enough

Cannot dissent if you voted for the resolution

Question 25

Board defenses to liability

Answer 25

1. BJR 2. if you were absent from the meeting 3. good faith reliance by a professional

Question 26

* Requirements for Board to Act

Answer 26

Director(s) do not have power to bind the corporation (e.g. enter into contracts on behalf of the corp.) unless there is actual authority to act. Actual authority only arises if: (i) proper notice was given for a director's meeting; (ii) quorum was present; (iii) majority of directors approved the action.

Question 27

*What must a dissenting board member do if he wants his dissent to be recorded in the minutes?

Answer 27

He must put the dissent in writing and deliver it to the corporation's secretary within a reasonable time after the . If the dissent is properly recorded, the board member will not be liable for acts that the board took in defiance of the dissent.