Directors Flashcards
Directors
Minimum is 1
Initially the number will be set in the certificate but then can be found in either the certificate or the bylaws
Who elects the board
SH at the annual meeting - each board member will be elected each year UNLESS:
classified board, only a certain portion of directors will be up for election each year
Removal of board members
SH can remove board members before their term expires by a majority of SH entitled to vote
With or without cause
If classified board- need cause to remove
Who fills vacancy on the board
either the SH or the remaining board members
Power of individual board members
nothing- they must act as a group of through a designated board committee
How the board can take action?
- unanimous written consent to do something
2. a meeting that satisfies quorum and voting requirements - can be a conference call
*Notice of Board meetings
Regular annual meeting: no notice required
Special meeting: notice required that states the date, time and place - does not require for it to state the purpose
Failure to give proper notice: what ever happened at the meeting is voidable unless notice is waived
*Email notice of Board Meetings
okay if the person receiving the notice has authorized this form of notice
can directors vote by proxy?
No, the directors owe the corporation nondelegable fiduciary duties
Quorum for Board
unless the bylaws state otherwise, a majority of all directors
Quorum will be broken if a board member leaves and then there is less than the majority needed
Board Voting
once a quorum is established, for the board to act/ pass a resolution a majority of votes of those present is needed
Big business decisions
made by the board
Board Committees
Large boards typically create committees that focus on individual subjects
can delegate management power to the committees
cannot have a committee: change the bylaws, select officers, or recommend a fundamental corporate change to SH
*Duty of Care
A director must act in good faith and exercise ordinary care and prudence
Burden will be on the P to prove that it was breached
Nonfeasance (the director does nothing)
- will only be liable if the breach caused a loss to the corporation
- breach + causation -> damages
- causation is hard to prove here
Will be a breach of duty of care
Misfeasance
the board does something that hurts the corporation
- causation will be clear here
- action must not be subject to the BJR protection
*Business Judgment Rule (BJR)
A court will not second-guess a business decision if it was made in good faith, was informed, and had a rational basis.
Just a prudent person standard.
The burden will be on the P to show that the BJR is not met
*Duty of Loyalty
director must act in good faith and with a reasonable belief that her act is in the corporations best interest
BJR will never apply here if there is a conflict of interest
*Self-Dealing
Breach of duty of loyalty
a deal between the corporation and one of the directors or close relative or business partner of the director
Interested director transactions will be set aside unless the director shows:
- the deal was fair to the corporation; OR
- her material interests were disclosed or known and the deal was approved in good faith by either:
a. SH vote
b. majority of disinterested directors even if they are
less than a quorum
Board Compensation
Can be set by the board as long as it is reasonable.
If pay is excessive it is a waste of corporate assets and a breach of the duty of loyalty
Competing Ventures (Duty of Loyalty)
Director cannot compete without approval of a disinterested majority of directors
Remedy: constructive trust on profits of the competing corporation
Corporate Opportunity (Duty of Loyalty)
Director cannot usurp a corporate opportunity. The director cannot take an opportunity of the corporation until:
- She tells the board; and
- waits for the board to reject the opportunity
Remedy: constructive trust, either corp gets to buy the opportunity or will get the profits from the opportunity
Can a corporation loan money to a director?
Generally no unless, it is reasonably expected to benefit the corporation
example: paying for board member to get his MBA
Which directors can be held liable?
A director is presumed to have concurred with the board action unless her dissent or abstention is noted in writing in corporate records
In writing:
- put in the meeting minutes
- sending a note to the corporate secretary at the meeting; or
- sending a registered letter to the corporate secretary right after the meeting
Oral dissent by itself is not enough
Cannot dissent if you voted for the resolution
Board defenses to liability
- BJR
- if you were absent from the meeting
- good faith reliance by a professional
- Requirements for Board to Act
Director(s) do not have power to bind the corporation (e.g. enter into contracts on behalf of the corp.) unless there is actual authority to act.
Actual authority only arises if:
(i) proper notice was given for a director’s meeting;
(ii) quorum was present;
(iii) majority of directors approved the action.
*What must a dissenting board member do if he wants his dissent to be recorded in the minutes?
He must put the dissent in writing and deliver it to the corporation’s secretary within a reasonable time after the .
If the dissent is properly recorded, the board member will not be liable for acts that the board took in defiance of the dissent.
