Directors and Officers

Question 1

Board of Directors in VA

Answer 1

• Virginia Corporations must have a Board of Directors.
• A corporation’s board of directors must have at least one member.
• Shareholders have a right to elect directors.

Question 2

Can shareholders remove a director before her term expires?

Answer 2

Yes.

Question 3

Do shareholders need cause to remove a director before her term expires?

Answer 3

No.

Shareholders can remove a director before her term expires with or without cause.

Question 4

Meeting Requirement

Answer 4

In order for the Board of Directors to act, a meeting is required, unless all directors consent in writing to act without a meeting.

Question 5

Notice requirement for meetings

Answer 5

A notice requirement of a directors’ meeting can be set in the bylaws/Articles, but don’t need to be by statute.

Question 6

Special meetings

Answer 6

If the Board of Directors hold a special meeting, the Board must provide notice in accordance with their bylaws/Articles, or if no rule setting out notice, by a resolution of the Board.

Question 7

What are directors not allowed to do in terms of voting at meetings?

Answer 7

1. Vote using proxies
2. Vote under a voting agreement (agreement with another director to pool their votes for a particular interest)
3. Abstain from voting when present.

Question 8

If you are not able to be physically present at a Board of Directors meeting, but you still want to vote, how can you do so?

Answer 8

By appearing via video conference and voting.

Question 9

What are the rules for quorum?

Answer 9

1. By default, you must have a majority of all directors present to do business.
2. You can modify this in your bylaws.
   
   1. BUT, you cannot set your quorum to less than 1/3 of all directors.

Question 10

What is the voting requirement to pass a resolution?

Answer 10

A majority of members present at the meeting must vote for it.

Question 11

Duty to manage

Answer 11

Directors must have a duty to manage the corporation.

Directors are allowed to delegate their management duties.

Question 12

In managing the corporation, the directors are protected from liability by ___ _______ ________ ____.

Answer 12

the business judgement rule.

Question 13

What is the business judgement rule?

Answer 13

A strong presumption that the directors manage the corporation in good faith and in the best interests of the corporation and its shareholders.

Question 14

Under the business judgement rule, directors will not be liable for…

Answer 14

innocent mistakes of business judgment.

Question 15

Under the business judgement rule, directors won’t be liable even for colossal mistakes, so long as…

Answer 15

they study the issue thoroughly.

Question 16

A director may be liable despite the business judgement rule if…

Answer 16

he doesn’t do his due diligence or study the issue thoroughly.

Question 17

Fiduciary duty of directors

Answer 17

Despite the business judgement rule, directors are fiduciaries to the corporation and owe them the duties of care and loyalty.

Question 18

What is the duty of care?

Answer 18

The duty to act with the care that a prudent person would use with regard to her own business.

Question 19

What is an exception to the duty of care?

Answer 19

The articles of incorporation have limited a director’s liability for a breach of the duty of care.

Question 20

What is the duty of loyalty?

Answer 20

A duty to not receive an unfair benefit to the detriment or the corporation or its shareholders.

Question 21

What is the exception to the duty of loyalty?

Answer 21

The director gives a material disclosure and receives independent ratification.

Question 22

What is independent ratification?

Answer 22

A majority vote of independent directors, or a majority vote of shares held by the independent shareholders, ratifying the otherwise duty-breaching benefit.

Question 23

Virginia presumes that board members act independently and within their fiduciary duties. How do plaintiffs rebut this presumption?

Answer 23

By presenting financial interest or familial interest on part of individual actors.

Question 24

What are some types of breaches of the duty of loyalty?

Answer 24

1. Self-dealing
2. Usurping corporate opportunities

Question 25

What is self-dealing?

Answer 25

A director who receives an unfair benefit to herself (or relative or another one of ther businesses) in a transaction with her own corporation (an interested director transaction).

Question 26

What is “usurping corporate opportinities”?

Answer 26

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

Question 27

What is indemnification in a corporate law context?

Answer 27

Indemnification is when a person sued in capacity as officer or director has incurred costs, attorneys’ fees, fines, a judgment or settlement, and seeks reimbursement from the corporation for these costs.

Question 28

The corporation may never indemnify a director/officer when they are held liable in a suit between…

Answer 28

the director/officer and the corporation itself.

Question 29

The corporation must always indemnify directors/officers if…

Answer 29

The directors/officers win a lawsuit against any party.

Question 30

In the event the director is found liable to a third party, or the corporation settles with the third party, the corporation may indemnify a director/officer if:

Answer 30

The Director or officer shows she acted in good faith and with the reasonable belief that her conduct was in the corporation’s best interest.

Question 31

Who may determine whether to grant permissive indemnity?

Answer 31

1. A majority vote of independent directors
2. A majority vote of a committee of at least 2 independent directors
3. A majority vote of shares held by independent shareholders, or
4. A special lawyer’s opinion that recommends indemnity