Directors and Officers

Question 1

Corporations must have a Board of Directors with at least how many members?

Answer 1

1

Question 2

Who elects directors?

Answer 2

The SHs

Question 3

Is a meeting required prior to Board action?

Answer 3

Yes, unless ALL directors consent in writing to act without a meeting

Question 4

Which corp. document sets notice for Board meetings?

Answer 4

The bylaws

Question 5

Are proxies allowed for Board meetings?

Are voting agreements allowed?

Answer 5

No

No.

Question 6

What constitutes a quorum at Board meetings?

Answer 6

Must have a majority of ALL directors to do business, unless a different percentage is required (can’t be less than 1/3rd)

However, to pass a resolution, only need a majority vote of those present.

Question 7

Directors have a duty to manage the corporation.

However, in doing so, directors are protected from liability by the Business Judgment Rule. What is this rule?

Answer 7

It is a presumptive that the directors manage the corporation in good faith and in the best interests of the corporation and its SH. As such, directors will not be liable for innocent mistakes of business judgment.

Question 8

What duties do directors owe as fiduciaries?

Answer 8

Duties of care and loyalty.

Question 9

What is the duty of care owed by directors?

Is liability for breach of duty of care subject to limitation?

Answer 9

Directors must act with the care that a prudent person would use with regard to her own business

Yes, both in general through the Business Judgment Rule and specifically through the AoI

Question 10

What is the duty of loyalty?

Answer 10

A director must not receive an unfair benefit to the detriment of the corporation or its SH, UNLESS there is a material disclosure and independent ratification.

Question 11

What are the two prime examples of breaches of the duty of loyalty?

Answer 11

Self-dealing

Usurping corporate opportunities

Question 12

What is self-dealing?

Answer 12

When a director receives an unfair benefit to herself (or to a relative or her other business) in a transaction with her own corporation (i.e. an interested director transaction).

Question 13

What is usurping a corporate opportunity?

Answer 13

When a director receives an unfair benefit by usurping for herself an opportunity which the corporation would have pursued

Question 14

How can directors avoid liability for breaches of the duty of loyalty?

Answer 14

By obtaining INDEPENDENT RATIFICATION through a majority vote of INDEPENDENT (non-interested) directors, or a majority vote of shares held by independent SHs.

Question 15

For the purposes of ratification, must the independence of voting directors/SH be proven?

Answer 15

No. Independence is presumed.

Question 16

May a person sued in capacity as officer/director obtain reimbursement (indemnification) for fees, fines, a judgment/settlement?

Answer 16

NEVER: if the director is held liable to the corporation (i.e. when the corp has sued the director, ostensibly for some breach of duty).

ALWAYS: if the director wins a lawsuit against a third party.

DISCRETIONARY if:

1) the director is found liable to a third-party, OR
2) the director settles with the corporation (i.e. in a suit by the corp. against the director); AND
3) the director/officer shows she acted in good faith and with reasonable belief that her conduct was in the corp.’s best interest.

Question 17

Who may determine whether to grant permissive indemnity?

Answer 17

1) A majority of independent directors;
2) A majority of a committee of at least 2 independent directors;
3) A majority of shares held by independent SHs
4) A special lawyer’s opinion;