Board of Directors

Question 1

Can a corporation be a director of another corporation?

Answer 1

No.

Question 2

How are directors selected?

Answer 2

By shareholders at the annual shareholders meeting

Question 3

What is the typical term for a board member?

Answer 3

1 year but they may be staggered or hold over

Question 4

Can a director be removed?

Answer 4

Under the RMBCA, a director can be removed with or without cause.

Question 5

What is the quorum rule?

Answer 5

a majority of all directors must be present

Question 6

What is the rule regarding the presence of directors?

Answer 6

A director must be present at the time tha tthe vote is taken. Unlike a shareholder.

Question 7

If a director does not vote in favor of an action that causes the corporation liability, may that director be liable?

Answer 7

Yes. Unless the director:

a) promptly objects to the holding of the meeting
b) ensure his dissent is noted in the minutes, OR
c) not vote in favor and deliver written notice of his dissent to the presiding officer before its adjournment or to the corp. immediately after

Question 8

Can directors agree on how to vote?

Answer 8

Generally, no.

Question 9

How are committees created?

Answer 9

Majority of the board of directors votes in favor and grants specific powers.

Question 10

What may a board committee not do?

Answer 10

1) declare distributions except within limits set by the board
2) Recommend actions that require shareholder approval
3) Fill Vacancies on the board or committees
4) Adopt Amend or repeal bylaws

Question 11

A corporation listed on a national securities exchange must have what committee?

Answer 11

An audit committee - these must be independent directors that are not otherwise employed or compensated by the corporation

Question 12

What are the duties of directors?

Answer 12

Duty of Care and Duty of Loyalty

Question 13

How must a director behave?

Answer 13

In a manner the director reasonably beleives is in the best interests of the corporation

Question 14

What is the director’s Duty of Care?

Answer 14

• act as a person in a like position would reasonably believe is appropriate under similar circumstances. Objective standard

Question 15

What is the reliance protection?

Answer 15

A director is entitled to rely on the performance of the following persons if the director reasonably believes them to be competent:

a) officers + other employees
b) outside attorneys, accountants etc
c) a committee of the board of which the director is not a member.

Question 16

What is the business judgment rule?

Answer 16

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

Question 17

What are the ways that the business judgment rule can be overcome?

Answer 17

a) lack of good faith
b) director not informed the amount the amount the director reasonably believed was necessary
c) the director did not show objectivity or independence from the director’s relation
d) sustained failure by the director to devote attention to an ongoing oversight of the business
e) failure to timely investigate
f) received unentitled financial benefit

Question 18

What is the rule on exculpatory provisions in the articles of incorporation for directors?

Answer 18

They do not protect directors from liability for breach of:

• the duty of loyalty
• not acting in good faith
• transactions for improper personal benefit

Question 19

Duty of Care breaches:

Answer 19

1) Self Dealing unless subject to a safe harbor. Business judgment rule doesn’t apply.
2) usurpation of conflict of interest test

Question 20

What are the safe harbors for transactions that involve a conflict of interest?

Answer 20

• Disclosure of all material facts to and approval by a majority of the board of directors without a conflicting interest
• Disclosure and approval by the shareholders
• fairness of the transaction to the corporation at time of commencement.

Question 21

When is a transaction fair to a corporation?

Answer 21

• did the corporation receive something comparative of value?

Question 22

What are the remedies for a transaction that violates conflict of interest rules?

Answer 22

Enjoin or rescind the transaction. The corporation can seek damages from the director.

Question 23

When is there an usurpation of corporation Opportunity?

Answer 23

Interest Expectancy - did the corporation have an existing interest in the opportunity?
- Line of Business - did the corporation have this in their line of business?

Question 24

When is there mandatory indemnification for a company to its director?

Answer 24

• when the director successfully defends himself for acting in his role as a director.

Question 25

When is there prohibited indemnification for a company to its director?

Answer 25

• if the director received an improper personal benefit.

Question 26

When may a company indemnify a director?

Answer 26

For an unsuccessful suit when:

a) director acted in good faith w/ reasonable belief that director’s action was in the best interests of the corporation
b) director did not have reasonable cause to think conduct was unlawful

Question 27

Does a director have inspection rights?

Answer 27

yes.