Directors and Officers Flashcards
Shareholder removal
Shareholders can remove directors with or without cause, except in some states where there is a staggered board.
BoD actions
The BoD acts as a group and has no authority to speak for or bind the corporation. They may act via unanimous agreement in writing, or at a meeting that satisfies the quorum and voting requirements.
Director notice
Directors need two days written notice for special meetings and failure to give notice makes any decisions from the meeting voidable, unless the directors who were not notified waive the notice defect in writing or by attending the meeting without objection.
Board voting
A quorum constitutes a majority of all directors unless otherwise specified in the by laws. If a quorum is present, passing a resolution requires only a majority of those present.
Board authority
Actual authority to bind the corporation will arise only if 1) proper notice was given for a meeting, a quorum was present and a majority of those present approved, or 2) by unanimous written consent.
Directors’ Duties
A director must discharge his duties in good faith and with a reasonable belief that his actions are in the best interest of the corporation. She must also use the care that a reasonable person would under circumstances. The burden to show that these duties were breached and caused damage to the corporation is on the challenger.
Business Judgment Rule
The business judgment rule is a presumption that a director’s decision may not be challenged if the director acted in good faith, with the care that an ordinarily prudent person would exercise, and in a manner which the director reasonably believed was in the best interest of the corporation. In discharging their duties, a director may rely on any information or statements presented by their officers, legal counsel or committees. However, their reliance must be reasonable.
Duty of loyalty breach
When a director engages in self-dealing with the corporation, the transaction will not be set aside unless the director fails to disclose all material facts to the disinterested board members or shareholders who approved the transaction, or the transaction was fair to the corporation. Some courts, even if the transaction is approved by knowledgeable and disinterested board members or shareholders, will still set aside the transaction if it is unfair.
Duty of loyalty – usurping a corporate opportunity
Under the duty of loyalty, directors are prohibited from usurping a corporate opportunity. Usurpation will arise if the director takes advantage of a business opportunity which the corporation has an interest or expectancy in. If the director encounters a business opportunity related to the corporation, she must present the opportunity to the corporation and disclose all material facts. The director may only then take personal advantage of the opportunity if the corporation decides not to pursue it.
Liability limits by AoI
A corporation’s articles may limit or eliminate directors’ personal liability for money damages to the shareholders or corporation for actions taken, except to the extent that the directors received a personal benefit he was not entitled, intentionally inflicted harm on the corporation, approved unlawful distributions, or intentionally committed a crime.
A corporation may not indemnify
A corporation cannot indemnify an officer or director who is 1) held liable to the corporation, or 2) received an improper benefit.
A corporation may indemnify
A corporation may indemnify a director for reasonable expenses in an unsuccessful defense if 1) the director acted in good faith and 2) believed her actions were in the best interest of the corporation.
A corporation must indemnify
A corporation must indemnify an officer or director who was successful in defending a proceeding on the merits.
Officers authority
Officers may act under actual or apparent authority as agents.
