Board of Directors

Question 1

Board of Directors

Answer 1

Authorizes officers and employees to carry out corporation’s business

Manages and directs high-level decisions of the corporation

Question 2

Board Composition

Answer 2

Number of directors established in articles of incorporation or bylaws

Minimum of 1 director

Director must be natural person

Question 3

Selection of Directors

Answer 3

Selected by shareholder vote at the annual meeting

Question 4

Term of Directors: Annual

Answer 4

1 year term that expires at the first annual meeting after director’s election

Question 5

Term of Directors: Staggered

Answer 5

Director can serve up to 3 years

Question 6

Resignation of Directors

Answer 6

May resign at any time with written notice to board of directors

Question 7

Removal of Directors

Answer 7

Shareholders can remove directors with or without cause

Unless provided otherwise by articles

Question 8

Compensation for Directors

Answer 8

Permitted unless the articles or bylaws provide otherwise

Question 9

Meeting Requirements

Answer 9

Directors are entitled to 2 DAYS’ notice of date, time, and place of SPECIAL MEETING

Director may waive notice of a special meeting, explicitly or by attending meeting

No notice required for REGULAR MEETINGS

Board of directors can act by unanimous written consent without holding a meeting

Question 10

Voting Requirements

Answer 10

Assent of MAJORITY OF DIRECTORS PRESENT is necessary for board approval

Must have quorum of directors

Majority of all directors in office, unless a higher or lower number for quorum is established in the articles or bylaws

The corporation may NOT establish a quorum of less than 1/3

Question 11

Director Committees

Answer 11

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

Generally a majority of directors must vote for the creation of the committee and for the appointment of a director to the committee

Question 12

Duties Owed By Directors to the Corporation

Answer 12

(1) Duty of Care
(2) Duty of Loyalty
(3) Duty of Good Faith

Question 13

Reliance Protection

Answer 13

Director is entitled to rely on statements, information, reports, and opinions of officers, employees, outside experts, or committees, if DIRECTOR REASONABLE BELIEVES THEM TO BE RELIABLE AND COMPETENT

Question 14

Business Judgment Rule

Answer 14

Director is protected if an action is taken in good faith exercise of their business judgment after reasonable investigation

Question 15

Self-Dealing

Answer 15

Director violates duty of loyalty by engaging in conflict of interest transaction with their own corporation

Question 16

Liability for Breach of Duty

Answer 16

Director liable only if breach constitutes willful misconduct or recklessness

Question 17

Usurpation of Corporate Opportunity

Answer 17

Director may not take an opportunity that belongs to the firm

Ask:

(1) Did corporation have INTEREST OR EXPECTANCY in the opportunity?
(2) Is the opportunity within firm’s current LINE OF BUSINESS?

Question 18

Safe Harbors

Answer 18

(1) Board disclaims corporation’s interest in opportunity
(2) Shareholders disclaim corporation’s interest in the opportunity

Either way, ALL KEY DETAILS MUST BE DISCLOSED

Question 19

Loans By Corporation to Director

Answer 19

In general, corporation CANNOT lend money to or guarantee the obligation of a director

Question 20

Indemnification

Answer 20

A director may seek indemnification from the corporation for expense and for any judgment if they are involved in a legal action as a consequence of their role as a director

Indemnification may be mandatory, permissive, or court-ordered

Question 21

Mandatory Indemnification

Answer 21

Corporation REQUIRED to indemnify director for expenses incurred in the wholly successful defense of a proceeding against the director as their role as director

Question 22

Permissive Indemnification

Answer 22

Corporation MAY indemnify a director in the unsuccessful defense of a lawsuit arising:

(1) When director acted in good faith with reasonable belief that their conduct was in the best interests of the corporation; or
(2) From a criminal proceeding as long as the director did not have reasonable cause to believe their conduct was unlawful

Question 23

Court-Ordered Indemnification

Answer 23

Director may apply to the court for an order compelling firm to indemnify director when eligible for mandatory indemnification or when director fairly and reasonably entitled

Question 24

Liability Insurance

Answer 24

Corporation may purchase liability insurance to indemnify directors for actions arising from service as a director