Board of Directors

Question 1

Who is responsible for the management of the business and the affairs of the corporation?

Answer 1

the board of directors

Question 2

Must the directors be shareholders of the corporation?

Answer 2

no, unless the bylaws state that they must.

Question 3

How many directors of a corporation must there be?

Answer 3

only one

Question 4

Is there a limit on the number of directors that a corporation can have?

Answer 4

no

Question 5

Vacancies in the board of directors may be filled by whom?

Answer 5

shareholders or directors

Question 6

Must a director be removed for cause?

Answer 6

no, a director can be removed with or without cause.

Question 7

A director elected by a voting group of shares can only be removed by whom?

Answer 7

that class of shares.

Question 8

Directors act in ________________.

Answer 8

regular meetings

Question 9

Do regular meetings require notice?

Answer 9

no

Question 10

Do special meetings require notice?

Answer 10

yes, by two days

Question 11

A quorum is a _____________ of the board of directors unless otherwise stated in the bylaws.

Answer 11

majority

Question 12

A quorum can never be less than _______________ of the directors.

Answer 12

one-third

Question 13

How can a director break a quorum?

Answer 13

by leaving in the middle of the meeting

Question 14

If a quorum is present, resolutions will be deemed approved if approved by a ________________ of directors present.

Answer 14

majority

Question 15

Any action required to be taken by the directors at a formal meeting may alternatively be taken by . . .

Answer 15

unanimous consent, in writing, without a meeting.

Question 16

Can corporations have committees?

Answer 16

yes

Question 17

Directors have a right to inspect _______________.

Answer 17

corporate books

Question 18

Can the articles of incorporation limit the liability of a director for actions taken or not taken?

Answer 18

yes

Question 19

What kinds of actions by the directors can the articles of incorporation not limit liability?

Answer 19

financial benefits received by the director to which she is not entitled, an intentionally inflicted harm on the corporation or its shareholders, unlawful corporation distributions, or an intentional violation of criminal law.

Question 20

Directors have a duty to manage . . .

Answer 20

to the best of their abilities.

Question 21

Directors must discharge their duties . . .

Answer 21

in 1) good faith; 2) with that care that an ordinarily prudent person in a like position would exercise under similar circumstances; and 3) in a manner the directors reasonably believe to be in the best interests of the corporation.

Question 22

Under the Business Judgment Rule, directors who manage according to their duties will . . .

Answer 22

not be held liable for business decisions that ended up being bad decisions.

Question 23

Directors have a duty to disclose what to their fellow directors?

Answer 23

all material corporate information.

Question 24

Conflicting Interest Transaction

Answer 24

a transaction where the director knows that she or a related person either 1) is a party to the transaction; 2) has a beneficial financial interest in, or is so closely linked to, the transaction that the interest would reasonably be expected to influence the director’s judgment if she were to vote on the transaction; or 3) is a director, general partner, agent or employee of another entity with whom the corporation is transaction business and the transaction is of such importance to the corporation that it would in the normal course of business be brought before the board.

Question 25

When will a conflicting interest transaction not be enjoined or result in the director paying damages to the corporation?

Answer 25

the transaction will not be enjoined if the transaction is approved by 1) a majority of the uninterested directors who know all the facts; 2) a majority of the uninterested shareholders who know all the facts; or 3) the transaction was fair to the corporation.

Question 26

What factors do courts consider in determining whether conflicting interest transaction is fair to the corporation?

Answer 26

the adequacy of the consideration, corporate need to enter into the transaction, the financial position of the corporation, and the available alternatives.

Question 27

When will a conflicting interest transaction that has been approved by the board nonetheless be set aside?

Answer 27

where the party challenging the transaction can show that it would constitute a waste of corporate assets.

Question 28

What are the possible remedies for a conflicting interest transaction?

Answer 28

enjoining the transaction, setting the transaction aside, damages, etc.

Question 29

Who sets the compensation of directors of a corporation?

Answer 29

the directors

Question 30

Compensation for directors will be upheld unless it is . . .

Answer 30

unreasonable

Question 31

Corporate Opportunity Doctrine

Answer 31

the fiduciary duties of directors prevent them from diverting a business opportunity from their corporation to themselves without first giving their corporation opportunity to act.

Question 32

A corporate opportunity doctrine problem only arises when?

Answer 32

when the director takes advantage of a business opportunity in which the corporation would have an interest or expectancy.

Question 33

Must a director present a business opportunity to their corporation even if the director knows the corporation cannot pay for the opportunity?

Answer 33

yes

Question 34

Who makes the decision about whether the take up a business opportunity extended to it by a director?

Answer 34

the board of directors

Question 35

What is a corporation’s remedy for when a director does not bring it a business opportunity that it would have an interest or expectancy in?

Answer 35

the corporation can either 1) recover profits from the director as a result of the opportunity; or 2) force the director to convey the opportunity to the corporation.

Question 36

Can directors engage in other businesses besides the corporation?

Answer 36

yes

Question 37

Can directors engage in business that competes with the business?

Answer 37

no, because they have a duty of loyalty.

Question 38

Under the common law, does a director have a duty to disclose all facts relevant to a securities transaction between the director and the other party to the transaction?

Answer 38

generally, no.

Question 39

When does a director have a duty to disclose all facts relevant to a securities transaction between the director and the other party to the transaction?

Answer 39

when the director knows of special circumstances.