Directors and Officers Flashcards
(37 cards)
Number of Directors
Must have at least 1.
Articles and bylaws may require as many as desired though, with no limitation
Must be ADULT NATURAL PERSONS (not young, not corporations)
Election of directors
elected at each annual SH meeting, unless otherwise provided
Initial directors are named in the articles
Entire board is elected each year, unless a staggered baord
Staggered board
If there are at least NINE directors, board can be into halves or thirds, with that portion being elected every year
Removal of directors
May be removed by SH WITH OR WITHOUT cause.
Majority of SH entitled to vote
NOTE: director elected by cumulative voting cannot be removed if the votes cast against removal would be sufficient to elect her if cumulatively voted at an election
NOTE: director elected by a voting group can only be removed by that class
Director Vacancies
Generally, board or SH will select replacement
NOTE; if SH created vacancy by removal, SH generally must select the replacement
Two ways Directors can generally act
(1) Unanimous written agreement; or (2) at a meeting that has a quorum
Individual acts by directors are generally void unless ratified later; UWC: or actual authority given beforehand at a director’s meeting
Notice in board meetings
usually set in bylaws
REGULAR MEETINGS: no notice required. you’er supposed to know!
SPECIAL MEETINGS: two days notice is required and MUST state time & place. No need to state a purpose for meeting, however.
NOTE: failure to provide notice voids whatever happened at the meeting, unless if notice is waived
Waiver of notice
Attendance waives notice at a special meeting unless if attending solely to protect lack of notice
Board Committees
Unless otherwise provided, board may create committees with AT LEAST two board members
Director proxies and voting agreements
VOID
Want director’s independent judgment. Can’t delegate by voting agreement or proxy as directors
Quorum for board
majority of BoD constitutes a quorum for the meeting, unless otherwise provided
NOTE: can never be fewer than 1/3 of the BoD
NOTE: quorum may be “broken” if people leave
Approval of action at a meeting
If quorum present, passing MAJORITY of those present is required to pass a resolution
Majority of majority is the least possible, generally
Director’s right to inspect
directors have a right to inspect books and records
Duty of care
“Directors owe the CORPORATION a duty of care. She must act in GOOD FAITH and do what a PRUDENT PERSON IN A LIKE POSITION would do under similar circumstances.”
Directors role generally
Directors role is to MANAGE the business of the corporation
Breach of duty of care
BURDEN ON PLAINTIFF. Must show breach CAUSED a loss to the corporation
Negligence essentially
Business Judgment Rule
A court will not second guess a business decision if it (1) was informed; (2) made in good faith; (3) made without COI; and (4) had a rational basis
court WILL NOT second guess a board’s decision just because it turns out poorly
ESSAY: always mention and apply, especially if there is misfeasance (maybe not for nonfeasance)
Reliance on reports
director’s reliance on reports may constitute reasonably informed and fall under BJR protection
Entitled to rely on reports prepared by (1) reliable corporate officers or employees; (2) legal counsel, accountants, or other third persons that reasonably have professional competence; or (3) board committees
Duty to disclose
Board has a duty to disclose material corporate info to other members of the board
Duty of loyalty
“Director owes the 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 does not apply b/c of conflicts
Interested director transaction
conflict exits if director or a closely related person either (1) is a party to the transaction; (2) has a beneficial financial interest or is closely linked to the transaction and that interest is reasonably expected to influence the director’s judgment; or (3) is a director or officer, or employee of the other entity and it would be in the normal course of business to bring it before the board
Violates DoL unless DIRECTOR shows EITHER that: (1) transaction was approved by a majority of disinterested directors (but at least 2) after all material facts were disclosed to the board; (2) transaction was approved by a majority of disinterested SHs after all material facts were disclosed to the SH; or (3) the transaction was fair to the corporation at the time of commitment
Material: whether an ordinarily prudent person would consider it important in deciding whether or not to proceed with the transaction
competing ventures
State loyalty standard. Then state that Directors CANNOT compete with the corporation
REMEDY: constructive trust on the profits from the corporation
Corporate Opportunity Doctrine
State loyalty standard. Then say “Director cannot usurp a corporate opportunity. Director must wait until he (1) tells the board about the opportunity and (2) waits for the board to reject the opportunity”
NOTE: company’s financial inability to make use of the opportunity is NOT a defense
REMEDY: if usurped, must sell it to corporation at D’s cost or, if made profit, constructive trust gives profits to company
What constitutes “corporate opportunity”
Generally, same line of business
Also may include something the company has an INTEREST OR EXPECTANCY in
Also may include something the director found on COMPANY TIME or with COMPANY RESOURCES
