Board of Directors and Officers (Corp Gov 16-20%)

Question 1

What is the BOD’s primary role?

B1-3

Answer 1

–safeguard the company’s assets
and
–maximize shareholder return

• no individual authority
• act as a group if quorum- duly constituted

Question 2

What are the roles of BOD?

B1-3

Answer 2

1. declare distributions
2. Fiduciary duties (4)
3. Indemnification
4. Limitation on Director liability
5. Manage Principal-Agent conflict

Question 3

What are BOD’s Fiduciary duties? (4)

B1-3

Answer 3

1. Right to Rely
2. Liability for Unlawful distributions/div
3. Duty of Loyalty
4. Corp Opportunity Doctrine

Question 4

BOD Fiduciary Duties

What is the Right to Rely?

B1-3

Answer 4

*Part of due diligence
BOD is entitled to rely on:
–officers, employees
–legal counsel, accountants

Question 5

BOD Fiduciary Duties

What is Liability for Unlawful Distr/Div?

B1-3

Answer 5

BOD is liable for authorizing distr when:

• -corp would not be able to pay its debts
• -corp’s total assets

Question 6

BOD Fiduciary Duties

What is Duty of Loyalty?

B1-4

Answer 6

To act in the best interests of the corp.

• Prohibits BOD from competing w/ corp
• -allowed to buy/sell to corp
• BOD has power to set director compensation

Question 7

BOD Fiduciary Duties

What is Corporate Opportunity Doctrine?

B1-4

Answer 7

If a business opportunity arises that is of best interest to the corp, director is prohibited to take it for self.
–can only take it for self if corp rejects it

Question 8

What is an Officer of the corp?

B1-5

Answer 8

Officers are indiv agents of the corp who manage day-to-day ops and may bind the corp w/ contracts

Question 9

How are Officers selected or removed?

B1-5

Answer 9

• -selected by BOD

- -removed by BOD w/ or w/o cause

Question 10

What Authority do Officers have?

B1-5

Answer 10

Apparent authority and corp. is liable

Actual- oral/written instruction
Apparent- “title” of CEO/CFO

Question 11

What are Officer’s Fiduciary Duties?

B1-5

Answer 11

• must act in good faith

- can be indemnified for exp and judgement from litigation against them in corp capacity

Question 12

Can Officers serve as BOD?

B1-5

Answer 12

Yes, but

good corp governance= majority of board should be independent

Question 13

Is an Officer required to be a shareholder?

B1-5

Answer 13

No, not required, but can be.

-can receive stock options as part of compensation