Board of Directors Flashcards
BoD meeting requirements
Regular Meetings: may be held w/out notice of the date, time, place, purpose
Special Meetings: directors are entitled to two days notice of the day, time and place (purpose not req’d)
BoD can act by unanimous written consent w/out holding a meeting.
Voting Requirements for BoD
The assent of a majority of directors present is necessary for board approval.
* To be a valid act, a quorom must have been present
* A majority of all directors in office constitute a quorom
Agreements b/t directors about how to vote (pooling agreements) are generally unenforceable
Directors may NOT vote by proxy.
What is required under a director’s duty of care?
- Prudent Person:
- Reliance Protection:
- Business Judgment Rule (BJR):
Duty of Care:
Prudent Person
- act w/ the care that a person in a like position would reasonably believe appropriate under similar circumstances (objective standard);
- req’d to use any addt’l knowledge and special skills he possesses when deciding how to act.
Duty of Care:
Reliance Protection
can rely on info and opinions of officers, employees, outside experts, or committees, if the director reasonably believes them to be reliable and competent.
Duty of Care:
Business Judgment Rule (BJR)
There is a rebuttable presumption that D reasonably believed his actions were in the best interest of the C
The presumption doesn’t apply when D engages in a conflict-of-interest transaction with C.
What is required to overcome the
Business Judgment Rule?
It must be shown that:
* D did not act in good faith
* D was not informed to the extent he reasonably believed was necessary
* D had material interests in challenged conduct and was not objective
* D failed to devote attention to C’s affairs;
* D failed to timely investgate matters of material concern; or
* D received financial benefits to which he was not entitled
Duty of Loyalty
for Directors
Requires directors to act in a manner that director reasonably believes is in the best interest of C.
Self-dealing by a Director
A director who engages in a COI transaction w/ his own C violates the duty of loyalty unless the transaction is protected under safe-harbor rules
Director can not profit at C’s expense
What type of transaction is involved in “self-dealing”?
One that would normally require BoD approval and is of such financial significance to D that it would reasonably be expected to influence D’s vote on the transaction
The interest must be financial and material.
What safe harbors are available for a director?
- Disclosure of all material facts and majority approval by BoD or SH’s w/out a conflicting interest
- Fairness (substantive and procedural) of the transaction to C at the time of commencement
What tests are used to determine if
usurption of C opportunity has occurred?
- Interest or Expectancy Test: does C have an existing interest or an expectancy arising from an existing right in the opportunity?
- Line-of-Business Test: is the opportunity w/in the C’s current or prospective LOB, and how expansive is C’s line of business
- Other Factors: r/ship of the 3rd party to D and of D to C; how and when D acquired knowledge of the opportunity
Indemnity / Insurance of Directors
- C is required to indemnify D for any reasonable expense incurred in the successful defense of a proceeding against the D.
- C is prohibited from indemnifying D against liability due to the receipt of an imroper personal benefit.
- C may indemnify in an unsuccessful defense if D acted in good faith with a reasonable belief that the conduct was in C’s best interest and D did not have reasonable cause to believe the conduct was unlawful.
