Board of Directors & Officers Flashcards
Removal of directors
Can be removed by shareholders for cause or without cause
Notice requirement for Director meetings
regular meetings: no notice required
special meetings: two days’ written notice of date, time, place
what is required for quorum of directors?
a majority of the board constitutes a quorum unless otherwise required by articles or bylaws
can be no fewer than 1/3
votes required for approval of action at Board of Directors meeting?
if a quorum is present, resolutions are deemed approved if by a majority of directors present
without a meeting? unanimous written consent required
Duty of Care: Board of Directors (3)
Directors have a duty to manage to the best of their ability and must discharge duties in:
(1) good faith
(2) with the care that an ordinarily prudent person in a like position would exercise under similar circumstances and
(3) in a manner they reasonably believe to be in the best interest of the corporation
Business Judgment Rule
Directors who meet the standards for duty of care will not be liable for corporate decisions that, in hindsight, turned out to be poor or erroneous
what may Directors rely upon when discharging fiduciary duties?
opinions, repors, statements if prepared or presented by:
(1) corporate officers or employees whom the director reasonably believes to be reliable and competent
(2) legal counsel, accountants, or other persons as to matters they reasonably believe are within such a person’s professional competence or
(3) a committee of the board of which the director is not a member, if director reasonably believes the committee merits confidence
Duty of Loyalty: The Three Violations
(1) conflicting interest transactions
(2) corporate opportunity
(3) competing business
Conflicting Interest Transactions
Director knows that she or a related person either:
(1) is a party to the transaction
(2) has a beneficial financial interest in it, or is so closely linked that the interest would reasonably be expected to influence the director’s judgment if she were to vote or
(3) is a director, general partner, agent, or employee of another entity involved in the transaction and it is of such importance to the corporation that it would be in the normal course of business to be brought before the board
Standards for upholding conflicting interest transaction (3)
(1) transaction was approved by a majority of directors (but at least two) without a conflicting interest after all material facts have been disclosed
(2) transacion approved by a majority of votes entitled to be cast by shareholders without conflicting interest after all material facts have been disclosed or
(3) transaction, judged according to circumstances at the time of commitment, was fair to the corporation
Corporate opportunity doctrine
Director cannot divert a business opportunity from the corporation to themselves
must first give the corporation an opportunity to act
corporation must have an interest or expectancy in it (line of business test)
Powers of Officers
governed by ordinary agency rules
unauthorized actions may become binding on corporation by ratification, adoption, or estoppel
corporation liable for actions of officers within the scope of their authority even if not specifically authorized
Standard of Conduct for Officers
Must carry out duties in good faith, with the care an ordinarily prudent person in a like position woudl exercise under similar circumstances and in a manner they reasonably believe is in the best interest of the corporation
(aka all fiduciary duties of directors)
Removal of Officers
can be removed with or without cause at any time, and may resign at any time with notice
however, removal or resignation cannot be done in breach of contract or nonbreaching party can sue for damages
Mandatory Indemnification of Directors & Officers
corp must indemnify director or officer who prevailed in defending a proceeding against them for reasonable expenses including attorneys’ fees, incurred in connection with proceedings
