3. Directors Flashcards
How can directors approve decisions without board meetings?
1) Unanimous vote (Directors)
2) In writing
How can directors approve decisions with board meetings?
1) Meeting
- Regular
- Special (2 days’ notice re date + time + place of meeting to ALL directors/Notice to Director by alternative method + Director votes at meeting)
2) Quorum
- Majority of Ds attend meeting/attend by alternative method and able to hear each other + Majority of attending Ds approve
How can directors lose approval of decisions?
Director objects to meeting
Director leaves meeting (breaks quorum)
How can a director comply with duty of care?
(Burden of proof => Plaintiff)
Business judgment rule (show intentional basis for Ds’ decisions - very deferential standard to directors)
1) Discharge in good faith
2) Ordinary prudent person in same position would do
3) Act was reasonably believed to be in Corporation’s best interests
Good faith reliance
1) Opinions/Reports/Statements
2) Officers/Employees/Directors’ committee/Lawyers/Accountants
3) Reasonably believed to be competent by Director
4) NOT related to Director
How can a director comply with duty of disclosure?
Disclose material corporation info to directors
How can a director be liable for breaching his duty of loyalty by conflicting interests?
1) Director/Related person
2) Engages with someone who will be reasonably expected to influence Director’s judgment/Receive beneficial financial interest
3) Director knows of this
4) Director should have brought this to Board’s attention
How can a director comply with his duty of loyalty by conflicting interests?
Burden of proof => Director
Disclosure of all material facts
1) Material facts (ordinary prudent person would consider important with processing transaction)
2) To disinterested Directors/Shareholders
3) Disinterested Directors/Shareholders consent by majority vote
Fair transaction
1) At the time
2) To Corporation
3) Adequate consideration/Corporate need/Financial position/Alternatives
What remedies are available against a director for conflicting interests?
Damages
Set aside transaction
Enjoin transaction
How can a director be liable for breaching his duty of loyalty by usurping corporate opportunities?
Burden of proof => Director
1) Not give Corporation an opportunity to act
2) Opportunity has interest/expectancy (within Corporation’s line of business) (not Corporation’s lack of financial ability)
What remedies are available against a director for usurping corporate opportunities?
Accounting for profits
Force conveyance of opportunity for amount director paid (constructive trust theory)
How can a director be liable for breaching his duty of loyalty by competing ventures?
Burden of proof => Director
1) Engage with competitor
2) Derive benefit
What is the difference between directors, shareholders and officers?
Directors
- Make decisions on Corporation’s governance
Shareholders
- Vote for Directors through elections
Officers
- Make decisions on Corporation’s daily management
How can directors limit their liability?
Articles of Incorporation
Exculpatory provisions
- Not for non-entitled financial benefits
- Not for intentionally inflicted harms
- Not for unlawful distributions
- Not for intentional violation of criminal law
What duties do officers owe to the corporation?
Reasonable care
Good faith
Bylaws
How may Corporation be liable to TPs for officers’ acts?
Principal-Agency relationship
1) Actual/Apparent authority/Ratification/Adoption/Estoppel
2) Acts within scope of authority
