Corp - Directors and Officers

Question 1

How many directors must be on a board?

Answer 1

1 SH - At least 1 Director

2 SH - At least 2 Directors

3 or more SH - At least 3 directors

Question 2

How must a publicly traded corporation board be set up?

Answer 2

They must be staggered into thirds.

Question 3

What vote is requried for shareholders to remove a director before their term expires?

Answer 3

Majority of shares actually voting must vote for removal. Can be with or without cause except public corp. then must be WITH CAUSE.

Question 4

Under what circumstances can directors remove a director?

Answer 4

For cause only with a majority vote of the remaining directors.

Question 5

What are the two ways a board can take an act?

Answer 5

(1) Unanimous written consent (email and fax OK) to act without a meeting; OR
(2) A meeting that satisfies quorum or voting requirements.

Question 6

Is notice required for a regular meeting? Special?

Answer 6

Regular - NO

Special - Yes at least two days notice of date, time, and place. Notice can be in writing or oral (if reasonable).

Question 7

How can a director waive the notice requirement for a special meeting? [Taking action without notice or without receiving waiver is void]

Answer 7

(1) In writing and signed.

(2) By attending the meeting without objection at the outset of the meeting.

Question 8

Are proxies or voting agreements OK for direct voting?

Answer 8

NO, they are void b/c director’s own non-delegable duties to the corporation.

Question 9

What is required for a quorum? and if quorum is present, what is required to pass a resolution?

Answer 9

Quorum -> Majority of all directors.

Pass resolution - Majority present.

Question 10

What actions can a board not delegate to a committee?

Answer 10

“Substantial management functions”

(1) Declare distribution
(2) Recommend a fundamental change to SH
(3) Fill a board vacancy
(4) Amend by law.

Question 11

What is the duty of care standard for a director?

Answer 11

A director must act

(1) in good faith
(2) with the care that a person in like position would reasonable believe appropriate;
(3) with the reasonable belief that her act is in the corporation’s best interest.

Fiduciary duty owed to corp. not the SH.

Question 12

What is a director liable for nonfeasance (doing notihing)?

Answer 12

Nonfeasance - breach of duty must cause a loss to the corporation.

Question 13

When is a director liable for misfeasance - doing something that hurts the corp.)?

Answer 13

Apply BJR - Did they act in good faith, were they informed, and have a rational basis for their decision?

Did they do their appropriate homework?

DIRECTOR IS NOT A GUARANTOR FOR SUCCESS

Question 14

What is the standard for duty of loyalty?

Answer 14

Directors must act with the reasonable belief her act is in the corporation’s best interest.

Directors can consider the interest of any relevant group in society.

BJR does not apply. This is about conflict of interest.

Question 15

When will an interested director transaction be set aside?

Answer 15

Set aside unless the director shows:

(1) deal was fair to the corporation when entered; OR
(2) her interest and the material facts were disclosed or known and the deal was approved by either:
(a) Majority (at least 2) of all disinterested directors OR
(b) Majority (at least 2) of a committee of disinterested directors)
(c) Majority of disinterested shares (not SH)

Approval by one of the group does not automatically set it aside. Court may require the director show it was fair.

Question 16

What is the rule for competing ventures by a director?

Answer 16

State Duty of Care Standard

Director cannot compete directly with her corporation. You can after you disassociate.

Question 17

What are the possible remedies for a director competing against the corporation?

Answer 17

(1) A constructive Trust on Sharon’s profit
(2) Possibly damages if competition hurt corporation
(3) May be a tort if she stole trade secrets.

Question 18

What is the rule for director’s an corporate opportunities?

Answer 18

First state Duty of care standard

Director cannot USURP a corporate opportunity. Director cannot take it until he (1) tells the board and (2) waits for the board to reject the opportunity.

Question 19

What is a corporate opportunity in Mass?

Answer 19

Test: Is it unfair to the corporation that the director took it?

Remedy:

Director must sell it to corporation at cost.

If Director previously sold it at a profit, the corporation gets the profit. CONSTRUCTIVE TRUST.

Question 20

When can a director receive a loan from the corporation?

Answer 20

Only if approved by a majority of all disinterested shares OR specific board finding that the loan benefits the corporation.

Question 21

When is a director liable for board actions?

Answer 21

A director is presumed to have concurred with board aciton unless he dissent or absentation is noted in writing in corporate records. [Oral Dissent is Not Enough]

Exceptions:

(a) Absent Directors are not Liable
(b) Good faith reliance on information prepared by (a) corporate officers or employees, (b) professionals, or (c) a committee of which the person relying was not a member.

BUT you must have a reasonable belief in the competence of the person providing that information.

Question 22

Mandatory Indemnification - Under what circumstances is the corporation required to reimburse?

Answer 22

If the director is wholly successful on the merits or other wise. DIRECTOR WON THE JUDGMENT!

Question 23

Prohibited Indemnification - When is the corporation barred from reimbursing?

Answer 23

If she is held liable for:

(1) Breach of the duty of loyalty
(2) Intentional Misconduct
(3) Wrongful Personal Benefit
(4) Improper Distribution

Corp. cannot limit or eliminate director liability for these items.

In every other case, Permitted, but not required.

Court can order indemnification if its fair and reasonable in view of all circumstances [limited to costs/attorney’s fees)