Board of Directors

Question 1

What is the primary responsibility of the board?

Answer 1

To manage and direct the corporation’s business and affairs

Question 2

When can a SH remove a board member? (CL, modern trend)

Answer 2

CL: SHs may remove a board member for breach of a fiduciary duty

Modern: Without cause

Question 3

What are the requirements for a valid BoD vote?

Answer 3

Majority approval of a quorum (generally a majority)

Question 4

What is required for a board member to be considered “present” at a meeting?

Answer 4

Physical presence is obviously sufficient. At the least, a phone call is sufficient if the director can hear and participate

Question 5

What are the notice requirements for a special board meeting?

Answer 5

(1) Notice at least 2 days before the meeting; and
(2) Notice must include the date, time, and place of the meeting.

A director who does not receive proper notice of the meeting may object.

Question 6

How does a director waive lack of notice of a meeting?

Answer 6

By attending the meeting.

Question 7

What fiduciary duties does the board owe to the corporation?

Answer 7

Fiduciary duties of care and loyalty

Question 8

What is the fiduciary duty of care and what does it include?

Answer 8

It means the duty to act as an ordinarily prudent board member in the board member’s position, including any special skills the board member has (e.g. accounting, law).

It includes the duty to investigate and ask questions.

Safe harbor for relying on reports and outside experts.

Question 9

What is the business judgment rule and which fiduciary duty does it apply to?

Answer 9

A rebuttable presumption that a director reasonably believed his actions were in the best interest of the corporation.

Protects a director from liability for breaches of the duty of care if he/she acted in good faith.

Question 10

How can a plaintiff overcome the business judgment rule?

Answer 10

(1) Director did not act in good faith;
(2) Director was not informed to the extent reasonably necessary;
(3) Director did not show objectivity and had a material interest in the decision;
(4) Director failed to timely investigate after being alerted to a significant matter; or
(5) Any other failure to act as a reasonable director.

Question 11

What is the duty of loyalty and when is it violated?

Answer 11

A director must act in the best interest of the corporation

It is violated if the director engages in self-dealing or usurping a corporate opportunity

Question 12

What does self-dealing entail?

Answer 12

Engaging in a transaction with the corporation that benefits the director or a close family member

Includes transactions with another business entity that the director is associated with

Question 13

What is the safe harbor for self-dealing transactions?

Answer 13

A self-dealing transaction is protected if:

(1) Interested director discloses all material facts to the board and receives approval by a majority of disinterested board members;
(2) Interested director discloses all material facts to shareholders and receives approval by a majority of disinterested shareholders; or
(3) Transaction is fair to the corporation substantively and procedurally.

Question 14

What is the remedy for a self-dealing transaction?

Answer 14

Transaction can be enjoined or rescinded and the corporation can seek damages from the interested director.

Question 15

What is usurping a corporate opportunity?

Answer 15

Taking an opportunity that the corporation would be interested in without offering it to the corporation first

Directors must present the opportunity to the corporation first, but if corporation declines opportunity, the director may take it without violating duty of loyalty

Question 16

How are officers chosen?

Answer 16

They are elected by the board

Question 17

What do the officers of a corporation do?

Answer 17

They run the day-to-day operations of a corporation

Question 18

Do officers have the authority to bind the corporation?

Answer 18

Yes, officers can bind the corporation via actual, implied, or apparent authority

Question 19

What is the corporation’s status while it “winds up”?

Answer 19

The corporation exists solely for the purpose of winding up its affairs and liquidating its business

Question 20

What are the main duties of the board of directors?

Answer 20

Appoint officers, oversee officers, and make high-level corporate decisions.

Directors usually receive compensation.

Question 21

What is a staggered board?

Answer 21

Classes of directors are elected at different times.

May only be removed for cause if the articles provide and if different classes of SHs may elect different directors, then only directors elected by that class may be removed by that class

Question 22

If a vacancy occurs on the board or if the board size is increased, how are new directors chosen?

Answer 22

They can be chosen by the SHs or the board itself

Question 23

When must board members be given notice of meetings?

Answer 23

For special meetings, board members must be given notice

For regular meetings, board members need not be given notice

Question 24

How can a board approve a proposal without meeting?

Answer 24

By unanimous written consent

Question 25

What is the effect of a dissent by a board member?

Answer 25

A board member dissenting means they avoid potential liability

Question 26

How can a board member express dissent?

Answer 26

(1) Entering dissent in the meeting minutes;
(2) File written dissent before the meeting is adjourned; or
(3) Provide written dissent by certified or registered mail to the corporation’s secretary immediately following the adjournment of the meeting.