Corporations - DIRECTORS AND OFFICERS (board action) Flashcards
How many directors must a corporation have? and how is the number of directors set?
must have ONE OR MORE adult natural persons and it can be set by (1) the bylaws or (2) shareholder act or (3) by the board if the shareholder bylaw allows
If no number of directors is set in any of these ways, then we have 1 director
Who elects the initial directors? and who elects them after that?
Incorporators elect INITIAL DIRECTORS, then after that shareholders elect them at the ANNUAL MEETING
Do we have to elect all new directors every year?
NO - certificate or a shareholder bylaw can establish 2, 3 or 4 CLASSES of directors, with one class elected each year - this is called a “CLASSIFIED BOARD”
(many states call it a “staggered board”)
e.g. if we had 9 directors, we could elect all 9 each year and they would have one-year terms OR we could have 3 classes of 3 directors each, and each year we would elect 3 directors; they would serve 3-year terms
REMOVAL OF DIRECTORS before the expiration of their term
Can a shareholder remove a director?
Can a board remove a director for cause?
WITH CAUSE
(i) shareholders CAN remove a director for cause
(ii) A BOARD can remove a director FOR CAUSE but ONLY IF the certificate or a shareholder bylaw allows
WITHOUT CAUSE
-Shareholders only, can remove a director WITHOUT CAUSE and ONLY IF the certificate or bylaws allow
Who fills a VACANCY on the board (e.g. director dies or resigns or is removed) ?
GENERAL RULE: the board selects the person who will serve the remainder of the term
Special Rule: however, in rare case when a director is removed by shareholders WITHOUT CAUSE, the Shareholders select the person who will serve the remainder of the term
How does the board of directors ACT?
Individual directors are NOT agents of the corporation, so they have no power to bind the corporation to anything. Instead the directors must act as a group
There are 2 ways in which the board can take a valid act
(1) UNANIMOUS written consent or
(2) A MEETING (note: individual convos are not meetings)
If a director purports to take an act in some other way, the act is VOID unless ratified by a valid act
If we have a meeting must it be held in NY? NO
NOTE: a meeting CAN BE by a conference call
Notice requirements for board meetings
Notice is NOT required for a REGULAR MEETING of the board, as long as time and place are set in the bylaws or the board
Notice IS required for SPECIAL MEETINGS of the board and it must state the TIME and PLACE, but not the purpose
What happens if the required notice for a special meeting is not given to a director?
Any action taken at the meeting is void unless the director not given notice waives the notice defect by
(1) in writing and signed ANY TIME
(2) by ATTENDING the meeting WITHOUT OBJECTION
Can a director give a proxy for director voting?
NO, these are VOID, directors have nondelegable fiduciary duties
Can directors enter voting agreements on how they will vote as directors?
NO, these agreements are also VOID
note: later we will see that shareholders can vote by proxy and voting agreement, but directors CANNOT
What is a QUORUM needed for a meeting of board of directors?
To do business, we must have a majority of the “ENTIRE BOARD” (duly constituted board - that means the number of positions if no vacancies)
Once we have a QUORUM, passing a resolution (which is how the board takes an act at a meeting) requires MAJORITY VOTE of those PRESENT
e.g. entire board has 9, need 5 ppl to show up to “do business” and to pass a valid act (resolution) you would need 3 ppl to vote in favor of it
what if have 5 directors show up at properly called meeting, but then one leaves? board CANNOT continue to do business, quorum has been broken and the board cannot act
suppose there are 9 directorship positions on board, but 2 of directors have resigned and no successors have been selected. So there are only 7 directors actually serving - what is a quorum now? STILL NEED 5, must have a majority of the ENTIRE BOARD
A corporation MAY decrease a quorum to less than a majority of directors in the CERTIFICATE or BYLAWS, BUT it can NEVER be fewer than 1/3rd of the ENTIRE BOARD
further, a corporation CANNOT decrease the requirement that passing a resolution requires a majority of directors present
can a corporation decrease a QUORUM to less than a majority of directors?
YES, in the certificate or bylaws, BUT it can never be fewer than 1/3rd of the ENTIRE BOARD
Can a corporation decrease the requirement that passing a resolution requires a majority of directors present?
NO, a corporation CANNOT DECREASE the requirement that passing a resolution requires a MAJORITY of the directors present
Can the corporation increase the QUORUM to greater than a majority of directors (e.g. 90% of the entire board must be present to do business)
YES, but in the CERTIFICATE ONLY, not the bylaws
Can the corporation require a supermajority vote to pass a resolution (e.g. 60% of directors present must approve the resolution)
YES, corp can require a SUPERMAJORITY vote to pass a resolution, but in the certificate only, not the bylaws
