Directors and Officers Flashcards
(28 cards)
Statutory requirements for Director (adult natural persons)
- One or more
- Initial director named in articles, shareholders elect oter directors at annual meeting
- Shareholders can remove directors before terms expire (gen requires majority of shares entitled to vote)
- Can remove with or without cause (unless staggered board, then must be with cause)
- If vacancy on board, board or shareholders selects new director (unless shareholders created vacancy by removing director, then shareholder must select replacement)
- Board of directors must act as group (unanimous agreement or in writing OR at meeting where satisfy quorum and voting requirements)
Staggered Board
Usually set in articles. Usually entire board selected each year but if staggered board it’s divided into half or thirds, with one half or one-third elected each year
What if directors agree to corporate act through individual convserations withotu meeting or unanimous written agreement?
Act is void unless ratified by valid act
Are individual directrors agents of corporation?
No, have no authority to speak for or bind corporation
Officers
agents of corporation
Board meeting
- Method for giving notice set in bylaws
- Notice not required for regular meetings
- Notice required for special meetings plus time & place
- Failure to give required notice voids meeting unless directors not notified waive notice defect
How do not notified directors waive notice defect
Writing anytime or attending meeting without objecting
Can directors give proxies or enter voting agreements for how vote as directors?
No, void because directors are non-delegable duties to corporation
Quorum for meetings of board
- For any board meetings, need quorum. Unless bylaws say otherwise, quorum is majority of all directors
- If quorum is present, passing a resolution requires only majority of those present
- Quorum can be lost if people leave
Role of directors
Manage business of corporation: sets policy, supervises officers, declares distributions, determines when stock will be issued, recommend fundamental corp changes to shareholders, etc.
-Committee of one or more drectors cannot declare dividends, set director compensation, fill a board vacancy
Duty of care (director)
- Burden on P
- A direcctor owes corporation duty of care, must act in good faith adn do what a prudent person would do with regard to her own business
- Remember BJR
Nonfeasance
Director does nothing. Liable only if breach caused a loss to corporation
Misfeasance
Director does something that hurts the corporation (causation clear)
Business Judgment Rule
Court will not second guess a business decision if made in good faith, was informed, and had a rational basis
Duty of loyalty (Director)
Burden on D. Director owes corporation a duty of loyalty. She must act in good faith and with a reasonable belief that what she does is in the corporation’s best interest.
BJR will nto apply when conflict of interest
Interested Director Transaction
- Any deal between the corporation and one of its directors (or close relative of director) or another business of director
- Interested director transaction will be set aside (or director liable in damages) UNLESS director can show either (1) deal was fair to the corporation when entered, OR (2) interest and relevant facts were disclosed and deal approved by either majority of disinterested directors or majority of disinterested shares
- Some courts also require showing of fairness
Special Quorum Rule
In many states, interested directors count towards a quorum
Directors setting own compensation
Must be reasonable and in good faith. If excessive, it’s a waste of corporate assets, and breach of duty of loyalty
Competing Ventures
Breach of duty of loyalty -director cannot compete directly with her corporation. Remedy = constructive trust on profits
Corporate Opportunity (Expectancy)
Breach of duty of loyalty -director cannot usurp a corporate opportunity so cannot take it unless (1) tells board oabout it, and (2) waits for board to reject opportunity
Corp opp = something in corp’s business line, has interest or expectancy in, or that was found on company time with company resources
Financial inability to pay for opp not a defense. Remedy - must sell opp to corp at own cost (or corp gets profit if sold for profit)
Constructive Trust
Equitable Remedy resembling trust that benefits party wrongfully deprived of rights b/c held by other party.
State Law Bases for Director Liability
- Ultra vires acts
- Improper distributions
- Improper loansq
Dissent to avoid director liability
Director presumed to concur with board action unless dissent or abstention noted in writing in corp records
In writing = in minutes or delivered in writing to presiding officer at meeting or written dissent to the corporation immediately after the meeting
Exception: absent director, good faith reliance on info
Officers
agents of corporation, owe same duties as directors. One person can hold multiple offices simultaneously. Officers must be selected adn removed by board (sets $)
