Ch. 40 Corporations - Directors, Officers, and Shareholders Flashcards
Who is the ultimate authority in every corporation?
BODs
What are the three key responsibilities of the BODs?
1) Select and remove corporate officers
2) Det. capital structure of corporation
3) Declare dividends
Are directors agents of the corporation?
NO (b/c they cannot act as an agent to bind the corporation)
Are directors trustees of the corporation?
NO (b/c they do not hold title to property for the use and benefit of others)
What document sets forth the number of directors in a corporation?
- Corporation’s articles OR bylaws
The initial board serves until the first annual shareholders’ meeting. How are the subsequent directors elected?
By majority vote of S/Hs
What can a director be removed for?
- For cause (for failing to perform a required duty, either as specified in the articles or bylaws or by S/H action)
Even when a director election appears to be authorized by the bylaws, may a court invalidate the results if the directors were attempting to manipulate the election in order to reduce the shareholder’s influence?
YES
What would you call a director who is also an officer of the corporation?
Inside director
What would you call a director who does not hold a management position?
Outside director
Define quorum
Minimum # of members of a body of officials or other group that must be present for business to be validly transacted
At BOD meetings, a majority of the board constitutes a what?
Quorum
At BOD meetings, once a quorum is present, what can the directors do?
Transact business and vote on issues affecting the corporation
For large corporations with a large # of members on the BOD, what can be done to deal with the myriad of complex business issues to make meetings less unwieldy?
- Create committees of directors and delegate certain tasks to these committees
What are two common types of committees?
- Executive committee
- Audit committee
What does an executive committee under the BOD handle?
- Handles interim management decisions b/w board meetings
- Limited to dealing with ordinary business matters
What does an executive committee under the BOD not have the power to do?
Does not have the power to:
- declare dividends
- amend bylaws, or
- authorize issuance of stock
What does an audit committee under the BOD handle?
- Responsible for selection, compensation, and oversight of the independent public accountants that audit the firm’s financial records
What three rights do corporate directors have to allow them to function properly in that position?
1) Right to participation
2) Right of inspection
3) Right to indemnification
What does the right to participation mean?
Directors:
- are entitled to participate in all BODs meeting
- have right to be notified of these meetings
What does right of inspection mean?
Each director:
-can access the corporation’s books and records, facilities, and premises
Why is the right of inspection essential for directors?
- Essential for directors to make informed decisions and to exercise the necessary supervision over corporate officers and employees
When a director becomes involved in litigation by virtue of his position or actions, the director may also have a right to ________.
Indemnification
What is the right to indemnification?
Directors right to reimbursement for legal costs, fees and damages incurred
The directors and officers owe a fiduciary duty to the corporation. In general, what do these fiduciary duties include?
- Duty of care
- Duty of loyalty
What does the standard of due care generally require a director or officer to do?
1) Act in good faith (honestly)
2) Exercise the care that an ordinarily prudent (careful) person would exercise in similar circumstances
3) Do what she or he believes is in the best interests of the corporation
If directors or officers fail to exercise due care and the corporation or its S/Hs suffer harm as a result, the directors or officers can be held liable for negligence unless what rule applies?
- Business judgement rule
