Corporations - Officers and Indemnification

Question 1

Officers

Answer 1

Officers are agents of the corporation. Agency law determines authority and power of officers. Corp is principal, officer is agent. Officers can bind corp IF they have agency authority (actual or apparent).

A corp doesn’t technically need officers.

Question 2

Officer Duties

Answer 2

Generally determined by bylaws or by the board or an officer autohrized by the board. Officers owe the same duties of care and loyalty to the corp as do directors.

Question 3

Selection and Removal of Officers

Answer 3

Officers are selected and removed by the board, which also decides their compensation.

An officer has the power to resign at any time by delivering notice to the corp and he corp has the power to remove an officer at any time WITH OR WITHOUT CAUSE.

If the resignation or removal is a breach of K, the nonbreaching party may have a right to damages, but note that mere appointment to office itself does not create any K right to remain in office.

Question 4

Indemnification of Directors, Officers, and Employees

Answer 4

If an officer or director gets sued by someone (either by someone else or on behalf of the corp as a derivative suit) they might get indemnification from the corp.

Categories of Indemnification:
1) No Indemnification - a corporation cannot indemnify a director who is 1: held liable to the corp or 2: held to have received an improper benefit
2) Mandatory Indemnification - unless limited by the articles, a corp must indemnify a director or officer who was successful in defending a proceeding on the merits or otherwise against the officer or director for reasonable expenses, including atty fees, incurred in connection with the proceeding. Some states have only mandatory partial indemnification for partially winning the case.
3) Permissive Indemnification - a corp may indemnify a director in situations not satisfying the two categories above. If the case against a director or officer settled, the corp might indemnify, but might not. The director must show 1: they acted in good faith and 2: believed that their conduct was a) in the best interests of the corp (when the conduct at issue was within the director’s official capacity); b) not opposed to the best interests of the corp (when the conduct was not within the director’s official capacity); or c) not unlawful (in criminal proceedings). It’s the standard for the duty of loyalty.

Usually the determination of whether to indemnify is to be made by a disinterested majority of the board, or if there is not a disinterested quorum, by a majority of a disinterested committee.