Board of Directors Flashcards
Can a corporation be a director of another corporation?
No.
How are directors selected?
By shareholders at the annual shareholders meeting
What is the typical term for a board member?
1 year but they may be staggered or hold over
Can a director be removed?
Under the RMBCA, a director can be removed with or without cause.
What is the quorum rule?
a majority of all directors must be present
What is the rule regarding the presence of directors?
A director must be present at the time tha tthe vote is taken. Unlike a shareholder.
If a director does not vote in favor of an action that causes the corporation liability, may that director be liable?
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
Can directors agree on how to vote?
Generally, no.
How are committees created?
Majority of the board of directors votes in favor and grants specific powers.
What may a board committee not do?
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
A corporation listed on a national securities exchange must have what committee?
An audit committee - these must be independent directors that are not otherwise employed or compensated by the corporation
What are the duties of directors?
Duty of Care and Duty of Loyalty
How must a director behave?
In a manner the director reasonably beleives is in the best interests of the corporation
What is the director’s Duty of Care?
- act as a person in a like position would reasonably believe is appropriate under similar circumstances. Objective standard
What is the reliance protection?
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.
What is the business judgment rule?
The rebuttable presumption that a director reasonably believed that his actions were in the best interests of the corporation.
What are the ways that the business judgment rule can be overcome?
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
What is the rule on exculpatory provisions in the articles of incorporation for directors?
They do not protect directors from liability for breach of:
- the duty of loyalty
- not acting in good faith
- transactions for improper personal benefit
Duty of Care breaches:
1) Self Dealing unless subject to a safe harbor. Business judgment rule doesn’t apply.
2) usurpation of conflict of interest test
What are the safe harbors for transactions that involve a conflict of interest?
- 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.
When is a transaction fair to a corporation?
- did the corporation receive something comparative of value?
What are the remedies for a transaction that violates conflict of interest rules?
Enjoin or rescind the transaction. The corporation can seek damages from the director.
When is there an usurpation of corporation Opportunity?
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?
When is there mandatory indemnification for a company to its director?
- when the director successfully defends himself for acting in his role as a director.
