Board of Directors

Question 1

BoD General Functions

Answer 1

• oversees high level corporate activities
• sets policy
• hires and fires the corp’s CEO
• sets compensation levels for EDs

Question 2

Director Number and Makeup

Answer 2

• corp can have as few as one director
• actual number must be specified in the corp’s by-laws or its CoF
• directors are not required to be a SH or a Texas resident

Question 3

Director Selection

Answer 3

• Directors are elected at the special or annual meeting by a plurality votes cast
• not majority*

Question 4

Director Removal

Answer 4

-may be removed at any time with or without cause unless CoF or bylaws provide otherwise

Question 5

Director Replacement

Answer 5

• when vacancy, either directors or shareholders may fill vacancy
• director’s vacancy can be filled by majority vote of the remaining directors regardless of whether they constitute a quorum
• OR the director’s vacancy can be filled by majority SH vote at the annual meeting or a special meeting called for the specific purpose of replacing the director

Question 6

Meeting Requirements

Answer 6

• physical presence is not required (email, etc) as long as members can communicate with each other during the meeting
• if directors are voting, voters must be properly identified and there must be and the directors must take an appropriate record of the vote

Question 7

Board Action without meeting

Answer 7

• board may act without holding a meeting
• board may take action by written consent
• if action done by written consent, action must be unanimous unless by-laws or CoF express otherwise

Question 8

Voting Requirements

Answer 8

• board action requires the presence of a quorum
• generally a majority unless the CoF or bylaws express a different quorum requirement
• quorum may never be less than 1/3 of members
• director voting by proxy is NOT allowed in TX

Question 9

Director Dissent

Answer 9

• directors can incur liability for their board decisions
• to avoid liab must have: dissent memorialized
• disagreement must be properly recorded for the record. (promptly object to the holding of the meeting; ensure objection is in meeting minutes; not vote in favor of the action and deliver written notice of dissent to the presiding officer before meeting adjourns)

Question 10

Committees

Answer 10

• board may take action through one or more committees
• board meeting may be exercised through committees, except for those actions that by law require that the action be taken by the board as a whole
• board as a whole may be liable for committee level board decisions

Question 11

Duty of Care

Answer 11

• must do in good faith and in a manner that ordinarily prudent person would in a similar circumstance
• board oversight/supervision
• board decision making

Question 12

Duty of Loyalty

Answer 12

• conflicting interest transactions
• usurpation of corporate opportunity
• competing with the corp
• directors salaries

Question 13

BJR

Answer 13

• business judgment rule
• presumes that the board actions are carried out in good faith after reasonable investigation and for acceptable reasons
• high standard
• how you view board actions

Question 14

Duty of Care Violations

Answer 14

• Oversight failure

- decision-making failure

Question 15

Oversight failure (duty of care)

Answer 15

• board has a duty to oversee/monitor those aspects of the corp that would be expected of an ordinary prudent person under similar circumstances
• P must prove: (1) Director failed to carry out his oversight/monitoring duties using the requisite standard of care AND (2)failure was the proximate cause of the harm suffered

Question 16

Decision-Making Failure (duty of care)

Answer 16

• occurs when the board as a whole considers a corp action and the decision turns out to be a bad one
• board liable if decison making process did not meet the requisite fiduciary duty standard of care
• directors not liable if acted in GF, after reasonable investigation and there was a RB for the decision
• directors can rely on others when making decisions as long as it’s warranted

Question 17

Duty of loyalty

Answer 17

• requires the director place the corp’s financial interests ahead of their own
• courts are less deferential in the duty of loyalty cases bc of conflicting nature of transactions

Question 18

Loyalty- conflicting interest transactions

Answer 18

-any transaction between a corp and a director
-must disclose the nature and existence of conflict to other board members (not confidential info)
-board members that aren’t conflicted must consider and decide through majority vote whether to go ahead with transaction
-if steps are followed, trans is safe harbored from challenge
(if challenged, the court will make an assessment whether trans was fair)

Question 19

Usurp of Corp Opp (loyalty)

Answer 19

-must disclose this opportunity to directors and give the board an opportunity to accept or reject the opportunity

Question 20

Competing with the Corp

Answer 20

• directors have an obligation not to engage in activities that directly compete with the corp
• directors may be held liable to the extent their competing actions have damaged the company’s profits

Question 21

Salaries

Answer 21

• directors no salary but are paid for services as a director
• officer- salary amounts will be upheld unless they are so large as to constitute a waste of corp assets