DIRECTORS: REQUIREMENTS AND ROLE Flashcards
STATUTORY REQUIREMENTS
The directors are responsible for the management of the business and affairs of the corporation.
Election
Initial directors may be named in the articles. If not, they are elected by the incorporator(s) at the organizational meeting. After that, the shareholders
elect the directors. The directors are elected at each annual shareholders’ meeting, subject to contrary provisions in the articles
Staggered Board
Staggered Board
The entire board is elected each year unless there is a “staggered” (or “classified”) board. Whether there is a staggered board is usually set in the articles. A staggered board is divided into half or thirds, with one-half or one-third elected each year.
Removal
Shareholders can remove directors before their terms expire. Shareholders may remove a director with or without cause. In some states, if there is a staggered board, shareholders can remove a director only with cause. A director elected by cumulative voting (which we’ll discuss in a later module) cannot be removed if the votes cast against removal would be sufficient to elect her if cumulatively voted at an election of directors. Similarly, a director elected by a voting group of shares can be removed only by that class.
Vacancies
Vacancies on the board may arise, for example, when a director resigns before their term is up. In such instances, who selects the person who will serve as director for the rest of the term? It’s the board or the
shareholders. But if the shareholders created the vacancy by removing a director, the shareholders generally must select the replacement.
Board Must Act as Group
The board of directors must act as a group. So is an individual director an agent of the corporation? No, she is not. Individual directors have no authority to speak for or bind the corporation. The directors must
act as a group (even if there is only one director). They may act in the following ways:
* Unanimous agreement in writing (email is OK, and separate documents are also OK); or
* At a meeting, which must satisfy the quorum and voting requirements discussed below.
Ratification of Defective Corporate Actions
Directors, incorporators, and officers may ratify defective corporate actions (that is, actions that are void or voidable due to a failure of authorization, such as those taken in the absence of the requisite board resolution or shareholder approval). To ratify
such an action, the board of directors must state the action to be ratified and the nature of the failure of authorization, approve the ratification, and seek shareholder approval if necessary
Board Meetings Notice
If there is a board meeting, the method for giving notice is set in the bylaws. Directors may act in regular or special meetings:
* For regular meetings notice is not required;
* For special meetings at least two days’ written notice of date, time, and place is required. The notice need not state the purpose of the meeting.
Failure to Give Notice
Failure to give required notice means that whatever happened at the meeting is voidable—maybe even void—unless the directors who were not notified waive the notice defect. They can do this (1) in writing any time, or (2) by attending the meeting without objecting at the outset of the meeting
