Board of Directors Flashcards
What is the primary responsibility of the board?
To manage and direct the corporation’s business and affairs
When can a SH remove a board member? (CL, modern trend)
CL: SHs may remove a board member for breach of a fiduciary duty
Modern: Without cause
What are the requirements for a valid BoD vote?
Majority approval of a quorum (generally a majority)
What is required for a board member to be considered “present” at a meeting?
Physical presence is obviously sufficient. At the least, a phone call is sufficient if the director can hear and participate
What are the notice requirements for a special board meeting?
(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.
How does a director waive lack of notice of a meeting?
By attending the meeting.
What fiduciary duties does the board owe to the corporation?
Fiduciary duties of care and loyalty
What is the fiduciary duty of care and what does it include?
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.
What is the business judgment rule and which fiduciary duty does it apply to?
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.
How can a plaintiff overcome the business judgment rule?
(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.
What is the duty of loyalty and when is it violated?
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
What does self-dealing entail?
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
What is the safe harbor for self-dealing transactions?
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.
What is the remedy for a self-dealing transaction?
Transaction can be enjoined or rescinded and the corporation can seek damages from the interested director.
What is usurping a corporate opportunity?
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
How are officers chosen?
They are elected by the board
What do the officers of a corporation do?
They run the day-to-day operations of a corporation
Do officers have the authority to bind the corporation?
Yes, officers can bind the corporation via actual, implied, or apparent authority
What is the corporation’s status while it “winds up”?
The corporation exists solely for the purpose of winding up its affairs and liquidating its business
What are the main duties of the board of directors?
Appoint officers, oversee officers, and make high-level corporate decisions.
Directors usually receive compensation.
What is a staggered board?
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
If a vacancy occurs on the board or if the board size is increased, how are new directors chosen?
They can be chosen by the SHs or the board itself
When must board members be given notice of meetings?
For special meetings, board members must be given notice
For regular meetings, board members need not be given notice
How can a board approve a proposal without meeting?
By unanimous written consent
What is the effect of a dissent by a board member?
A board member dissenting means they avoid potential liability
How can a board member express dissent?
(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.
