D&Os

Question 1

• *1. How many directors minimum for NY corp?

2. How is number of directors set (3 poss ways)?

Answer 1

1. 1 or more natural people

2. set by (a) bylaws; (b) SH action; (c) by BOD if bylaw allows it

Question 2

staggered board w/ different classes s.t. not all directors are elected each year is called ______ in NY

Answer 2

classified board

Question 3

can SHs remove a director for cause?

Answer 3

yes

Question 4

can board remove a director for cause?

Answer 4

IFF cert or bylaws allow it

Question 5

can anyone remove directors w/o cause?

Answer 5

only shareholders and IFF cert or bylaws allow it

Question 6

if there’s a board vacancy, who selects person to serve remainder of term?

Answer 6

BOD selects replacement

Question 7

where director is removed w/o cause by SHs, who selects replacement to serve remainder?

Answer 7

SHs

Question 8

*2 ways for BOD to act

Answer 8

1. meeting

2. unanimous written consent

Question 9

if directors purport to act w/o either meeting or unanimous written consent, that action is _____?

Answer 9

void

Question 10

1. is notice required for regular meeting of BOD?

2. what’s required in notice for special meeting?

Answer 10

1. no

2. special meeting reqs notice of time and place, but not purpose

Question 11

If dir. doesn’t get notice of special meeting, any action taken there is VOID unless director waives defect in 1 of 2 ways

Answer 11

1. in writing waiver, or

2. attending meeting w/o raising objection

Question 12

can director give proxy for director voting? can directors enter voting agreements WRT how they’ll vote as directors?

Answer 12

No. Fid duty is non-delegable and can’t enter agreements

Question 13

**how many directors required at meeting to take action?

Answer 13

quorum = majority of all board seats (including current vacancies)
must have majority of quorum to pass resolution.

Question 14

if you have min for quorum and one dir leaves during meeting, can you still act?

Answer 14

no. quorum broken

Question 15

can corp decrease quorum to less than majority and if so, how?

Answer 15

can decrease it in cert or bylaws, but no fewer than 1/3 of entire board

Question 16

can corp decrease requirement that passing reso reqs maj of directors present?

Answer 16

no

Question 17

can corp increase quorum to greater than simple majority and if so, how?

Answer 17

yes, in certificate can increase quorum. NOT BYLAWS.

Question 18

What does BOD do?

Answer 18

manages busienss

Question 19

**If cert or bylaws allow, majority of entire board can delegate to committees, but cannot delegate 4 things:
NB: committee can make reqs re each of those things

Answer 19

1. set dir comp
2. fill BOD vacancy
3. submit fundamental change to SHs
4. change bylaws

Question 20

Define duty of care standard (2 key parts)

Answer 20

1. discharge duties IN GOOD FAITH and

2. with diligence, care and skill that PRUDENT PERSON would exercise in same circumstances

Question 21

*NONFEASANCE SUIT FOR beach of duty of care, have to show (A) Breach and (B) Loss causation. Easy to prove (B)?

Answer 21

No. Very hard to prove loss causation due to NONFEASANCE

Question 22

*MISFEASANCE suit for breach of duty of care, apply the ______, which standard states that (3 elements)?

Answer 22

Business judgment rule: courts won’t second-guess business decision made (1) in good faith; (2) was reasonably informed, and (3) had rational basis.

Question 23

**Define duty of loyalty (2 elements)

Answer 23

1. act in GOOD FAITH with

2. conscientiousness, fairness, morality, and honesty required OF FIDUCIARIES

Question 24

duty of loyalty comes up in cases of?

Answer 24

self dealing and/or conflict of interest

Question 25

how does BJR apply to duty of loyalty cases?

Answer 25

N/A. Loyalty cases are about confl of interest/dealing. BJR inapplicable.

Question 26

**under duty of loyalty, interested director transactions (b/t corp and dir) are set aside UNLESS dir shows either 1. deal was fair and reas to corp when approved OR, 2. material facts and dir.’s interest were disclosed or known and deal was approved in one of 3 ways:

Answer 26

approved after disclosure by:

1. SH action, or
2. BOD approval of disinterested directors if you have a quorum; or
3. unanimous vote of disinterested directors if there’s not enough for a quorum

Question 27

can interested directors attend meeting where there’s a vote on their interested transaction?

Answer 27

yes, can attend and talk, but only disinterested directors can vote

Question 28

if BOD sets director comp that is unreasonable or excessive or not in good faith, that is _______ of corp assets

Answer 28

WASTE

Question 29

to grant options to D&O or employees when stock isn’t publicly listed, requires ____

Answer 29

options require SH approval

Question 30

if director starts competing venture, it’s a breach of ____? meaning profit goes into _____?

Answer 30

breach of loyalty –> business’s profit goes into constructive trust –> we make her ACCOUNT FOR HER PROFITS b/c she’s unjustly enriched

Question 31

**1. what if director USURPS corporate opportunity that corp doesn’t have money to pursue? 2. what qualifies as corp opportunity? 2. what is remedy for director usurping corporate opportunity?

Answer 31

1. breaches duty of loyalty
2. includes any opportunity related to corp’s needs, tangible interest, expectancy, or logically related to corp’s business.
3. remedy is constructive trust for the profits

Question 32

** Dir presumed to concur w/ BOD action unless he?

Answer 32

dissents IN WRITING.

oral dissent NOT EFFECTIVE.

Question 33

3 ways for dir to dissent from BOD action in writing.

Answer 33

1. in minutes
2. writing to corp sec at meeting
3. registered mail to corp sec promptly post-meeting

Question 34

When is a director not liable for BOD action that she didn’t dissent from in writing?

Answer 34

when there’s GOOD FAITH RELIANCE on info, ops, reports, or statements by officers, employees, lawyers, accountants, committee, etc. this defends directors against ILLEGAL DISTRIBUTIONS b/c they relied on others saying it was okay.

Question 35

what are an officer’s duties under the BCL?

Answer 35

same as directors: duty of care and loyalty

Question 36

officers can bind the corp in the _______, provided that ______

Answer 36

bind corp in ordinary course, provided that they are so authorized by cert or bylaws

Question 37

who selects and removes officers?

Answer 37

BOD unless cert says SHs do it

Question 38

1. who hires and fires directors?

2. who hires and fires officers?

Answer 38

1. SHs hire/fire directors

2. directors hire/fire officers

Question 39

when is corp prohibited from reimbursing D&O legal fees?

Answer 39

if D&Os held liable, can’t reimburse

Question 40

when must corp reimburse D&Os?

Answer 40

when they win suit

Question 41

when may corp PERMISSIVELY reimburse D&O for suit when D&O settles? D&Os must show 2 things to get reimbursed

Answer 41

1. good faith
2. D&O reasonalby believed settlement was in corp’s best interest
   (decided by non-party board members, quorum, SHs, or BOD per ind. legal op)

Question 42

can court order corp to reimburse D&O?

Answer 42

yes, upon finding that D&O reasonably entitled to reimbursement

Question 43

Can corp advance legal expenses to D&O? When clawback mandatory?

Answer 43

1. corp can permissively advance attorney’s fees, but

2. D&O must reimburse if they lose and there’s a finding D&O wouldn’t have been reimbursed for expenses

Question 44

**any time you see breach of duty, open with: CERTIFICATE MAY ELIMINATE DIRECTOR LIABILITY TO CORP OR SHS FOR DAMAGES FOR BREACH OF DUTY EXCEPT (4 things)

Answer 44

1. bad faith acts
2. intentional misconduct
3. receipt of improper benefit
4. approval of illegal distribution or loan