DIRECTORS AND FIDUCIARY DUTIES Flashcards
Who are the Corporation’s Directors
Statutorily charged with managing a corporation.
Director Requirements
Must be:
(1) one or more persons
(2) 18 years or older
(3) elected (or removed) by Shareholders at annual meeting of Shareholders
(4) Any act requires a Directors Meeting unless all Directors consent to the act in writing
Quorum of Directors
Legal minimum number of directors to show up before there can be a meeting.
A quorum is a majority of all the directors and can vary-but no lower than ⅓ of all directors.
*Assuming a quorum is present, a majority of directors in the quorum present must affirmatively vote to pass a resolution unless otherwise stated in the bylaws.
Duty of Loyalty
A director must act in good faith and with a reasonable belief that what she does is in the corporation’s best interest
Interested Director Transaction
Where a director is on both sides of the transaction
Safe Harbor
Generally, an interested Director transaction (IDT) is considered void/breach, however an IDT can be set aside if the interested director can show that the transaction was
(1) fair to corporation, and
(2) approved by a majority of either:
- disinterested directors OR
- disinterested shares
The burden will shift to plaintiff to show that the transaction was not in the best interest of the corporation.
Limited Liability of Directors
Directors who were absent or dissented* to a decision resulting in liability of the corporation are generally not liable.
*Dissenting director must have his vote recorded in the meeting in order to avoid liability
Good Faith Reliance (Directors)
Directors may rely in good faith on
(1) the opinion of, or info provided by competent officers, employees or professionals;
(2) financial statements prepared by accountants
Immunity Statute
Directors are not liable for damages for breaching duties of care or loyalty unless they also:
-violated criminal law;
-received improper benefit; authorized an unlawful dividend; or
-engaged in reckless, willful, or intentional misconduct.
Outside Directors
Some directors are employed by the corporation but some are “outside directors” and are not present daily, but they may attend meetings.
Officers
- Day-to-day management is delegated to Officers to assist the running of the corporation.
- Directors elect Officers
- Officers are viewed as agents of the corporation.
- Anyone can hold multiple offices
Duty of Care
A director must act with the care that an ordinarily prudent person would reasonably believe appropriate under similar circumstances.
Breach of Duty of Care
Causation AND injury must be proven: Duty is fiduciary, thus breach is easy to spot. Must show how the breach caused damage to the corporation.
Business Judgment Rule
A court will not second-guess an informed board decision. Only in the cases of gross negligence will the director’s lose protection.
Fiduciary Duties
Directors owe fiduciary duties to the Corporation.
Fiduciary duties are the highest level of duty owable.
