Board of Directors Flashcards
Board of Directors
Authorizes officers and employees to carry out corporation’s business
Manages and directs high-level decisions of the corporation
Board Composition
Number of directors established in articles of incorporation or bylaws
Minimum of 1 director
Director must be natural person
Selection of Directors
Selected by shareholder vote at the annual meeting
Term of Directors: Annual
1 year term that expires at the first annual meeting after director’s election
Term of Directors: Staggered
Director can serve up to 3 years
Resignation of Directors
May resign at any time with written notice to board of directors
Removal of Directors
Shareholders can remove directors with or without cause
Unless provided otherwise by articles
Compensation for Directors
Permitted unless the articles or bylaws provide otherwise
Meeting Requirements
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
Voting Requirements
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
Director Committees
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
Duties Owed By Directors to the Corporation
(1) Duty of Care
(2) Duty of Loyalty
(3) Duty of Good Faith
Reliance Protection
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
Business Judgment Rule
Director is protected if an action is taken in good faith exercise of their business judgment after reasonable investigation
Self-Dealing
Director violates duty of loyalty by engaging in conflict of interest transaction with their own corporation
Liability for Breach of Duty
Director liable only if breach constitutes willful misconduct or recklessness
Usurpation of Corporate Opportunity
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?
Safe Harbors
(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
Loans By Corporation to Director
In general, corporation CANNOT lend money to or guarantee the obligation of a director
Indemnification
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
Mandatory Indemnification
Corporation REQUIRED to indemnify director for expenses incurred in the wholly successful defense of a proceeding against the director as their role as director
Permissive Indemnification
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
Court-Ordered Indemnification
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
Liability Insurance
Corporation may purchase liability insurance to indemnify directors for actions arising from service as a director
