Directors

Question 1

director

Answer 1

Responsible for the management of the business and affairs of the corproation

Question 2

Qualifications for a director

Answer 2

• Adult natural persons
• Need not be shareholders
• Any additionaly qualification acceptable so long as reasonable and lawful
• No limits on ability to discharge duties

Question 3

How are directors selected?

Answer 3

• Initial directors may be named in articles or selected by incorporators
• Subsequent directors elected by shareholders at annual meeting

Question 4

How are directors removed?

Answer 4

• May be removed by s/hs before term expires with or without cause
• If it is a staggard board, cna only be removed with cause
• If elected by cumulative voting, cannot be removed if votes cast against removal would be sufficient to elect her if cumulatively voted at an election of directors
• Director selected by voting group can only be removed by that class

Question 5

How are vacacnies filled?

Answer 5

• Board or shareholders may fill vacancies
• If vacancies caused by s/h, then s/h must fill it

Question 6

Requirements for Board Action

Answer 6

Boad must act as a group
* Unanimous agreement in writing
* At a meeting (satisfying quorum and voting requirements)
* May ratify defective corporate actions

Question 7

Notice Requirements for Board Meetings

Answer 7

Requirements
* Not required for reuglar meetings
* At least two days written notice of date, place, time

Failure to Give Notice
* Board action is voidable
* Directors can waive notice via (1) writing at any time or (2) aattending the meeting w/o objecting at outset

Question 8

What is not allowed at a board meeting?

Answer 8

• Cannot give proxies
• Cannot enter voting agreements

Question 9

Number Requirements for Baord Meetings

Answer 9

1. Quorum: majority of all directors (no fewer than 1/3)
2. Approval of action: majority of votes present
3. Broken quorum when director leaves meeting

Question 10

actutal authority

Answer 10

Director may only bind corporation w/ actual authority
Requirements
1. Proper notice given for director’s meeting, quorum was present, majority of director’s approved the action
2. Unanumous written consent of the directors

Question 11

committees

Answer 11

Board can delegate any action to a committee except:
1. declare a distribtuion
2. Fill a board vacancy
3. Recommend a fundamental change to shareholders

Question 12

Standard for Fiduciary Duties

Answer 12

1. Good faith and with reasonable belief that her actions are in th best interest of the corproaiton (duty of loyalty)
2. Use the care that a person in like position would reasonably believe appropriate under the circumstances (duty of care)

Question 13

Duty of care

Answer 13

Use the care that a reasonable person in like position would reasonably believe appropriate under the circumstances

Burden on the plaintiff

Defenses
* Business judgement rule
* Reliance on report or other information from officers, employees, experts, etc.

Question 14

nonfeasance

Answer 14

• The failure to act when a reasonable indiviudal would
• Difficult to demonstrate causation

Question 15

malfeasance

Answer 15

• Action that hurts the business
• Causation is often much more clear
• Court can rely on business judgement rule

Question 16

business judgement rule

Answer 16

Under this standard, a court will uphold the decisions of a director as long as they are made (1) in good faith
(2) with the care that a reasonably prudent person would use
(3) with the reasonable belief that the director is acting in the best interests of the corporation.

Question 17

Duty of Loyalty

Answer 17

• Act in good faith and with reasonable belief that actions are in th ebest interest of the corporation
• BJR never applies since it concerns a conflict of interest
• Burden on the defendant

Question 18

conflicting transaction

Answer 18

Trasnaction b/w corporation and (1) one of it directors, (2) director’s close relative’s, (3) another business of its directors

Question 19

What is the standard for upholding a conflicting interest transaction?

Answer 19

• All material acts disclosed + approved by majority of disinterested directors
• All material facts disclosed + approved by majority of votes entitled to be cast by disinterested shareholders
• Judged to be fair at the to the corporation

Question 20

Examples of Nonconflicting Interest Transactions

Answer 20

• Directors may set own compensation so long as reasonable, in good faith
• Directors may engage in unrelated businesses

Question 21

corporate opportunity doctrine

Answer 21

Prohibition from diverting business opporunity from corporation to themselves without first giving corporation an opporunity to act

Standards
* Interest or expectancy
* Line of business

Remedies
* Constructive trust
* Compelled transfer
* Recovery of profits

Question 22

Can a corporation make a loan to a director?

Answer 22

So long as it is reasonably expected to benefit the corporation

Question 23

Can the articles limit a director’s personal liability?

Answer 23

Generally, yes for money damages for actions taken or failure to act

Cannot limit liability for
* Financial benefits recieeved to which she is not entitled
* Intentional infliction of harm
* Unlawful corporate distributions
* Intentional violation of criminal law

Question 24

Determining Director Liability

Answer 24

Director is assumed to concur with board action unless dissent or absentetion is noted in writing (minutes, presiding officer, written dissent)

Exception: not liable if absent from board meeting