Directors Flashcards
director
Responsible for the management of the business and affairs of the corproation
Qualifications for a director
- Adult natural persons
- Need not be shareholders
- Any additionaly qualification acceptable so long as reasonable and lawful
- No limits on ability to discharge duties
How are directors selected?
- Initial directors may be named in articles or selected by incorporators
- Subsequent directors elected by shareholders at annual meeting
How are directors removed?
- 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
How are vacacnies filled?
- Board or shareholders may fill vacancies
- If vacancies caused by s/h, then s/h must fill it
Requirements for Board Action
Boad must act as a group
* Unanimous agreement in writing
* At a meeting (satisfying quorum and voting requirements)
* May ratify defective corporate actions
Notice Requirements for Board Meetings
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
What is not allowed at a board meeting?
- Cannot give proxies
- Cannot enter voting agreements
Number Requirements for Baord Meetings
- Quorum: majority of all directors (no fewer than 1/3)
- Approval of action: majority of votes present
- Broken quorum when director leaves meeting
actutal authority
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
committees
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
Standard for Fiduciary Duties
- Good faith and with reasonable belief that her actions are in th best interest of the corproaiton (duty of loyalty)
- Use the care that a person in like position would reasonably believe appropriate under the circumstances (duty of care)
Duty of care
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.
nonfeasance
- The failure to act when a reasonable indiviudal would
- Difficult to demonstrate causation
malfeasance
- Action that hurts the business
- Causation is often much more clear
- Court can rely on business judgement rule
business judgement rule
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.
Duty of Loyalty
- 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
conflicting transaction
Trasnaction b/w corporation and (1) one of it directors, (2) director’s close relative’s, (3) another business of its directors
What is the standard for upholding a conflicting interest transaction?
- 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
Examples of Nonconflicting Interest Transactions
- Directors may set own compensation so long as reasonable, in good faith
- Directors may engage in unrelated businesses
corporate opportunity doctrine
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
Can a corporation make a loan to a director?
So long as it is reasonably expected to benefit the corporation
Can the articles limit a director’s personal liability?
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
Determining Director Liability
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
