3. Directors and Officers

Question 1

_{Statutory Requirements for Directors}

How many directors must there be?

Answer 1

At least one

Question 2

_{Statutory Requirements for Directors}

How are the initial directors elected?

Answer 2

1. Named in articles, or
2. Elected by incorporators at organisational meeting

Question 3

_{Statutory Requirements for Directors}

By whom and where are subsequent directors elected?

Answer 3

SHs at the annual meeting

Question 4

_{Statutory Requirements for Directors}

By whom and for what can directors be removed?

Answer 4

SHs; with or without cause

Question 5

_{Statutory Requirements for Directors}

Where a director resigns before end of term, who selects the replacement for the rest of term?

Answer 5

SHs, OR board

Question 6

_{Statutory Requirements for Directors}

Can directors give proxies or enter voting agreements? How come?

Answer 6

No, they owe non-delegable fiduciary duties

Question 7

What is a director’s primary role?

Answer 7

Manage the corporation

Question 8

When the board delegates to a committee of one or more directors, what are three things a committee is not allowed do?

Answer 8

1. Declare distribution
2. Approve fundamental change
3. Fill a vacancy

Question 9

_{Fiduciary duties owed to corporation}

What is the full standard which we must state in any answer where a director is getting in trouble?

Answer 9

A director must discharge her duties in good faith and with the reasonable belief that her actions are in the best interests of the corporation. [dol]

She must also use the care that a person in like position would reasonably believe appropriate under the circumstances. [doc]

Question 10

_{Fiduciary duties owed to corporation}

What are the two types of breaches of the duty of care and on whom is the burden of proof?

Answer 10

1. Nonfeasance
2. Misfeasance

Burden on P

Question 11

_{Fiduciary duties owed to corporation}

What must occur for a director to be liable for nonfeasance?

Answer 11

It must cause a loss to the company

Question 12

_{Fiduciary duties owed to corporation}

What standard must a director meet to not be liable for misfeasance?

Answer 12

The business judgment rule

Question 13

_{Fiduciary duties owed to corporation}

What does the business judgment rule require?

Answer 13

That the director do some homework before acting

Question 14

_{Fiduciary duties owed to corporation}

Where the business judgment rule is satisfied, why will the court not get involved?

Answer 14

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

Question 15

_{Fiduciary duties owed to corporation}

What are the three potential breaches of the duty of loyalty and on whom is the burden of proof?

Answer 15

1. Self-dealing
2. Competing venture
3. Corporate opportunity

Burden on D

Question 16

_{Fiduciary duties owed to corporation}

One of which two things must a director show to prevent a self-dealing transaction from being set aside?

Answer 16

1. Deal was fair to corp when entered into, or
2. D’s interest and relevant facts were known and deal was approved by majority or disinterest directors or shares

Question 17

_{Fiduciary duties owed to corporation}

What is a corp’s remedy for when a director competes with it?

Answer 17

Constructive trust on on the competing venture’s profits, payable to corp

Question 18

_{Fiduciary duties owed to corporation}

What must a director do before taking a corporate opportunity from the corp?

Answer 18

Tell the board about it, and wait for them to reject it

Question 19

_{Fiduciary duties owed to corporation}

What looks like an attractive defence to a charge of usurping a corporate opportunity, but is not?

Answer 19

The fact the company could not afford the opportunity

Question 20

_{Indemnification of directors sued by or on behalf of corp}

When can a corp indemnify a director?

Answer 20

When the director successfully defended the case of the merits

Question 21

_{Indemnification of directors sued by or on behalf of corp}

When can a corp not indemnify a director?

Answer 21

When they were held** liable to corp or **held to receive an improper benefit

Question 22

_{Indemnification of directors sued by or on behalf of corp}

When might a corp be able to indemnify litigation costs?

Answer 22

Where director acted pursuant to duty of loyalty

Question 23

_{Indemnification of directors sued by or on behalf of corp}

Where director acted pursuant to duty of loyalty, who determines if the corp will indemnify litigation costs?

Answer 23

Disinterested directors/shares, OR legal counsel

Question 24

_{Indemnification of directors sued by or on behalf of corp}

Not withstanding the rules, when can a court order indemnification?

Answer 24

When it is justified

Question 25

Can liability for breaches of duty of care and duty of loyalty be eliminated in the articles?

Answer 25

Only liability for duty of care can be eliminated