Board of Directors

Question 1

What are the composition requirements for a board of directors?

Answer 1

can have as few as one
director must be a natural person and not a corp
directors are selected at annual SH meeting

Question 2

Term limit of Director

Answer 2

typically one year but may be longer if terms are staggered

Question 3

True or False

Directors can be removed by SH’s with or without cause unless othewise stated in articles?

Answer 3

True

Question 4

When can Director resign?

Answer 4

at any time with written notice to board, its chair, or corp

Question 5

Can you compensation directors?

Answer 5

Yes

Question 6

Meeting requirements

Answer 6

• Special Meetings: two days written notice of date, time and place
• Regular Meetings: may be held without notice
• Unanimous written consent: decisions can be made with unanimuous written consent

Question 7

What are voting requirements for board of directors?

Answer 7

• assent of a majority of Directors present is necessary for baord approval
• must have a quorum present (majority of all Directors in office)

Question 8

Are agreements between directors on how to vote (pooling) enforceable?

Answer 8

No, they are unenforceable

Question 9

May directors vote by proxy?

Answer 9

NO

Question 10

What kind of authority or powers do committees have?

Answer 10

may generally exercise whatever powers are granted to them by the board of directors, articles, or bylaws

Question 11

Duty of Care for Board of Directors

Answer 11

a director has a duty to act with the care that a person in a like position would reasonably believe appriopriate under similar circumstances (objective standard) and is required to use an additional knowledge and special skills he possesses when deciding how to act

Question 12

Does a director have a reliance protection?

Answer 12

Yes

Question 13

What is a reliance protection?

Answer 13

a Director can rely on information and opinions of Owners, employees, outside experts, committees, if Director reasonably believes them to be reliable and competent

Question 14

Define

Business Judgment Rule (BJR)

Answer 14

a rebuttable presumption that director reasonably believed his actions were in the best interest of the corp

Question 15

When does the BJR not apply?

Answer 15

when Director engages in conflict-of-interest transaction

Question 16

When can the BJR be overcome?

Answer 16

it must be shown that:
1) D did not act in good faith
2) was not informed to the extent he reasonably believed necessary
3) D had material interests in challenged conduct and was not objective
4) D failed to devote attention to Corp’s affairs
5) D failed to timely investigate matters of material concern, or
6) D received financial benefits to which he was not entitled

Question 17

The BJR good faith presumption is over come in cases of

Answer 17

Fraud, dereliction of duty, condoning illegal conduct, or conflict or interest

Question 18

What is the director duty of loyalty

Answer 18

requires D to act in a manner that D reasonably believes is in the best interest of corp

Question 19

What violates the duty of loyalty?

Answer 19

• self dealing
• usurpation of corporate oppurtunity

Question 20

What is the rule against self dealing

Answer 20

D who engages in a conflict of interest transaction with his own Corp violates the duty of loyalty unless the transaction is protected under the safe-harbor rules

D cannot profit at Corp’s expense

Question 21

What type of transaction does a self-dealing transactiona apply too?

Answer 21

one that normally requires approval of Board and is of such financial significance to D that would reasonably be expected to influence D’s vote of the transation and the interest must be financial and material

Question 22

What is the safe harbor for self-dealing?

Answer 22

1) disclosure of all material facts and majority approval by Board or SH’s without a conflicting interest
2) fairness (substantive and procedural) of the transaction to Corp at the time of commencement

Question 23

What are the two test for a usurpation of corporate opportunity?

Answer 23

1) interest or exectancy test
2) line of business test

Question 24

What is the interest or expectancy test?

Answer 24

does corporation have an existing interest or an expectancy arising from an existing right in the oppurtunity

Question 25

What is the line-of business test?

Answer 25

is the oppurtunity within the corp’s current or prospective line of business, and how expansive is Corp’s line of business

Question 26

What other factors (besides the two tests) are considered for usurpation of corporate opportunity?

Answer 26

A Director who engages in a business venture that competes with Corp has breached the duty

Question 27

True or False

Corporation is required to indemnify Director for any reasonable expense incurred in the successful defense of a proceeding against the Director?

Answer 27

True

Question 28

True of False: Corp is not prohibited from indemnifying Director against liability due to the receipt of an improper personal benefit.

Answer 28

False. Corp is prohibited.

Question 29

True or False: Corp may indemnify in an unsuccessful defense is Director acted in good faith with a reasonable belief that the conduct was in Corp’s best interest and D did not have reasonable cause to believe the conduct was unlawful

Answer 29

True

Question 30

Do directors have a right to inspect and copy Corp’s book and records?

Answer 30

Yes