Corp - Directors and Officers Flashcards
How many directors must be on a board?
1 SH - At least 1 Director
2 SH - At least 2 Directors
3 or more SH - At least 3 directors
How must a publicly traded corporation board be set up?
They must be staggered into thirds.
What vote is requried for shareholders to remove a director before their term expires?
Majority of shares actually voting must vote for removal. Can be with or without cause except public corp. then must be WITH CAUSE.
Under what circumstances can directors remove a director?
For cause only with a majority vote of the remaining directors.
What are the two ways a board can take an act?
(1) Unanimous written consent (email and fax OK) to act without a meeting; OR
(2) A meeting that satisfies quorum or voting requirements.
Is notice required for a regular meeting? Special?
Regular - NO
Special - Yes at least two days notice of date, time, and place. Notice can be in writing or oral (if reasonable).
How can a director waive the notice requirement for a special meeting? [Taking action without notice or without receiving waiver is void]
(1) In writing and signed.
(2) By attending the meeting without objection at the outset of the meeting.
Are proxies or voting agreements OK for direct voting?
NO, they are void b/c director’s own non-delegable duties to the corporation.
What is required for a quorum? and if quorum is present, what is required to pass a resolution?
Quorum -> Majority of all directors.
Pass resolution - Majority present.
What actions can a board not delegate to a committee?
“Substantial management functions”
(1) Declare distribution
(2) Recommend a fundamental change to SH
(3) Fill a board vacancy
(4) Amend by law.
What is the duty of care standard for a director?
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.
What is a director liable for nonfeasance (doing notihing)?
Nonfeasance - breach of duty must cause a loss to the corporation.
When is a director liable for misfeasance - doing something that hurts the corp.)?
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
What is the standard for duty of loyalty?
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.
When will an interested director transaction be set aside?
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.
What is the rule for competing ventures by a director?
State Duty of Care Standard
Director cannot compete directly with her corporation. You can after you disassociate.
What are the possible remedies for a director competing against the corporation?
(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.
What is the rule for director’s an corporate opportunities?
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.
What is a corporate opportunity in Mass?
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.
When can a director receive a loan from the corporation?
Only if approved by a majority of all disinterested shares OR specific board finding that the loan benefits the corporation.
When is a director liable for board actions?
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.
Mandatory Indemnification - Under what circumstances is the corporation required to reimburse?
If the director is wholly successful on the merits or other wise. DIRECTOR WON THE JUDGMENT!
Prohibited Indemnification - When is the corporation barred from reimbursing?
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)
