Chapter 4: Board of Directors Flashcards
Board of Directors appointment and removal
Primary managers of corp. make big decisions, but delegate to officers to make day to day business decisions.
Must have at least 1 director, voted upon by SH at annual meeting, 1 year staggered terms.
Can be removed w/ or w/out cause, SH may removed director through voting at a special meeting, or through judicial proceedings in the case of fraud, dishonesty, or gross abuse.
Board meeting and voting requirements
Must meet regularly or when a certain event requires them to meet.
In close corp., directors may act by unanimous written consent, signed before or after the action is taken
Default voting rules:
Quorum: 50% of eligible voters must be present
Maj passage level
Not voting pools, voting trusts, or proxies allowed for director votes
Directors must personally vote their shares
Duties of Directors
Duty of care
Must act w/ care of ordinarily prudent person in the position of the director.
Business judgment rule is focused on the process of business decision making and not the outcome. To defeat this, P must show bad faith, director was not independent or director was not sufficiently informed.
Articles may include an exculpatory provision that makes the director’s liable only for BF or conflicted tx or improper distributions.
Duty of loyalty
Director must act in best interest of corp
Generally involve conflicts of interest of usurpation of corp opportunity
Conflict of interest will not result in liab if: independent director approves w/ knowledge, independent SH approve w/ knowledge or tx was fair
Acting on a corp opportunity w/out first offering it to the corp. , functionally related to corp. business or one in which the corp has an interest or expectancy.
What happens when a director or officer is sued?
Litigation costs and damages may be subject to reimbursement by corp or covered by ins.
Indemnification may be mandatory or prohibited or permissive.
Mandatory indemnification applies to lit costs incurred in a successful defense.
Prohibited indemnification applies to damages resulting from a director’s receipt of improper personal benefit or damages resulting from a successful derivative action
Permissive applies to all other lit costs and damages if director acted in GF w/ reasonable belief conduct was appropriate.
Officers
Operate below the board (president, VP, etc.) manage day to day operations
and type of officers set in articles and bylaws
Selected by the board
Operate under actual, implied or apparent authority
Duty of care and loyalty
Same indemnification rules for board
