Directors and Officers Flashcards
Board of Directors in VA
- 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.
Can shareholders remove a director before her term expires?
Yes.
Do shareholders need cause to remove a director before her term expires?
No.
Shareholders can remove a director before her term expires with or without cause.
Meeting Requirement
In order for the Board of Directors to act, a meeting is required, unless all directors consent in writing to act without a meeting.
Notice requirement for meetings
A notice requirement of a directors’ meeting can be set in the bylaws/Articles, but don’t need to be by statute.
Special meetings
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.
What are directors not allowed to do in terms of voting at meetings?
- Vote using proxies
- Vote under a voting agreement (agreement with another director to pool their votes for a particular interest)
- Abstain from voting when present.
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?
By appearing via video conference and voting.
What are the rules for quorum?
- By default, you must have a majority of all directors present to do business.
- You can modify this in your bylaws.
- BUT, you cannot set your quorum to less than 1/3 of all directors.
What is the voting requirement to pass a resolution?
A majority of members present at the meeting must vote for it.
Duty to manage
Directors must have a duty to manage the corporation.
Directors are allowed to delegate their management duties.
In managing the corporation, the directors are protected from liability by ___ _______ ________ ____.
the business judgement rule.
What is the business judgement rule?
A strong presumption that the directors manage the corporation in good faith and in the best interests of the corporation and its shareholders.
Under the business judgement rule, directors will not be liable for…
innocent mistakes of business judgment.
Under the business judgement rule, directors won’t be liable even for colossal mistakes, so long as…
they study the issue thoroughly.
A director may be liable despite the business judgement rule if…
he doesn’t do his due diligence or study the issue thoroughly.
Fiduciary duty of directors
Despite the business judgement rule, directors are fiduciaries to the corporation and owe them the duties of care and loyalty.
What is the duty of care?
The duty to act with the care that a prudent person would use with regard to her own business.
What is an exception to the duty of care?
The articles of incorporation have limited a director’s liability for a breach of the duty of care.
What is the duty of loyalty?
A duty to not receive an unfair benefit to the detriment or the corporation or its shareholders.
What is the exception to the duty of loyalty?
The director gives a material disclosure and receives independent ratification.
What is independent ratification?
A majority vote of independent directors, or a majority vote of shares held by the independent shareholders, ratifying the otherwise duty-breaching benefit.
Virginia presumes that board members act independently and within their fiduciary duties. How do plaintiffs rebut this presumption?
By presenting financial interest or familial interest on part of individual actors.
What are some types of breaches of the duty of loyalty?
- Self-dealing
- Usurping corporate opportunities
