Directors and officers

Question 1

How many directors are required?

Answer 1

1 or more

Question 2

Initial directors are usually named in the articles. thereafter, who elects the directors?

Answer 2

shareholders at annual meeting

Question 3

Can shareholders remove directors before their terms expire?

How?

Answer 3

Yes by a vote of a majority of SHARES entitled to vote

Question 4

on what bases can shareholders remove a director?

Answer 4

with or without cause (but if staggered board, for cause only)

Question 5

if there’s a vacancy on the board (e.g. director resigns before term up), who selects person who will serve as director for rest of the term?

Answer 5

board or shareholders (but if shareholders created vacancy by removing director, shareholders generally must select replacement)

Question 6

how can board of directors take an act?

Answer 6

unanimous agreement in writing

OR

at a meeting (which must satisfy quorum and voting requirements)

Question 7

what if directors agree to act through individual convos, without a meeting or unanimous written agreement?

Answer 7

act is void UNLESS its ratified by valid board act (unanimous agreement in writing or at a meeting)

Question 8

if there is a board meeting, method for giving notice is usually set it…

Answer 8

bylaws

Question 9

for regular meetings, notice required?

Answer 9

no

Question 10

for special meetings, is notice required?

Answer 10

yes- must state time and place but not purpose

Question 11

what’s the effect of failure to give required notice?

unless…

Answer 11

voids whatever happened at the meeting, unless the directors not notified WAIVE the notice defect in WRITING anytime or by ATTENDING meeting w/o objecting

Question 12

can directors give proxies or enter voting agreements for how they will vote as directors?

Answer 12

no, void

Question 13

what’s the quorum requirement for board meetings?

Answer 13

must have a MAJORITY OF ALL DIRECTORS to do business (unless a diff percentage is set in bylaws)

Question 14

how does the board take an act at a meeting?

Answer 14

passing a resolution

Question 15

if quorum is present at meeting, passing resolution requires…

Answer 15

only a majority vote of those PRESENT

Question 16

Quorum of the board can be lost/broken if…

and what effect?

Answer 16

ppl leave

once quorum no longer present, Board cannot take an act at that meeting

Question 17

Role of directors: generally, the board of directors…

Answer 17

manages the business of corporation

Question 18

Role of directors: some of the things directors do

Answer 18

1) sets policy
2) supervises officers
3) declares distributions
4) determines when stock will be issued
5) recommends fundamental corporate changes to shareholders

Question 19

the board can DELEGATE to a committee of one or more directors, but a committee cannot do what?

Answer 19

1) declare dividends
2) set director compensation
3) fill board vacancy

Question 20

Director owes the corp a duty of care. she must…

Answer 20

act in good faith and do what a prudent person would do with regard to her own business

Question 21

For breaches of duty of care by director, who is burden on?

Answer 21

plaintiff

Question 22

What are the ways in which a director can breach duty of care?

Answer 22

nonfeasance

misfeasance

Question 23

Duty of care: director will be liable for breaching duty of care (when nonfeasance), only if…

Answer 23

his breach CAUSED A LOSS to the corporation

Question 24

Duty of care: director will NOT be liable for breaching duty of care (when misfeasance), if

Answer 24

she meets the business judgment rule (BJR): the court will not second-guess a business decision if it was made

in good faith
was informed
and had a rational basis

Question 25

A director owes the corp a duty of loyalty, meaning she must…

Answer 25

act in good faith

and with a reasonable belief that what she does is in the corp’s best interest

Question 26

Who is burden on in duty of loyalty cases?

Answer 26

defendant (director)

Question 27

Whose interests are conflicting duty of loyalty cases

Answer 27

director vs. corporation

Question 28

3 ways a director can breach duty of loyalty to director

Answer 28

1) interested director transaction
2) competing ventures
3) corporate opportunity (expectancy)

Question 29

Duty of loyalty: what is an interest director transaction?

Answer 29

any deal b/w the corp and one of its directors (or a close relative of a director) or another business of the director’s

Question 30

Duty of loyalty: interested director transaction will be set aside (or the director liable in damages) UNLESS the director shows either…

Answer 30

1) deal was FAIR to the corp when entered
2) her interest and the relevant facts were disclosed or known and the deal was APPROVED by either 1) majority of disinterested directors 2) majority of disinterested shares

Question 31

Duty of loyalty: interested director transaction: even if deal was approved by an appropriate group, some courts will still require…

Answer 31

a showing of fairness

Question 32

Duty of loyalty: competing ventures rule and remedy

Answer 32

director cannot complete DIRECTLY w/ her corporation

remedy: constructive trust on prifts

Question 33

Duty of loyalty: corporate opportunity (expectancy) rule:

Answer 33

director cannot USURP a corporate opportunity , meaning the director cannot take it until he 1) TELLS the board about it and 2) waits for the board to REJECT the opportunity

Question 34

Duty of loyalty: what is a corporate opp?

Answer 34

something in the corporation’s business line

something co has an interest or expectancy in

something that was found on company time or with company resources

Question 35

Duty of loyalty: corporate opportunity remedy

Answer 35

if director has it, must sell it to the corp at his cost

if director sold it at a profit, corp gets the profit

Question 36

board can loan a director corp funds IF

Answer 36

reasonably expected to benefit corp

Question 37

Which directors are liable for all the things directors are liable for? directors are presumed to concur with board action unless..

and exceptions

Answer 37

her dissent or abstention is noted IN WRITING in corporate records:

in minutes
delivered in writing to presiding officer at meeting
written dissent to corp immediately after meeting

Exceptions:
absent director not liable for stuff done at meeting she missed

good faith reliance on info

Question 38

Officers owe the same duties of care and loyalty as…

Answer 38

directors

Question 39

What’s the status of officers? what are they

Answer 39

agents of the corp; they can bind the corp by acts for which they have authority to bind it (crossover with agency)

Question 40

officer status: president generally has inherent authority to bind the corp to Ks in the….

Answer 40

ordinary course of business

Question 41

Officers are selected by and removed by…

which also sets…

Answer 41

Board

officer compensation

Question 42

When is corp barred from indemnifying (for costs, atty’s fees, fines, judgment or settlement) an officer or director the corp sued?

Answer 42

when officer or director found LIABLE to the corp OR to have received an improper personal benefit

Question 43

When MUST corp indemnify officer or director?

Answer 43

when she is successful in defending (whens he won a judgment)

Question 44

Corp MAY (permissive indemnification) officer or director when…

Answer 44

not found liable or to have received personal benefit AND when not successful in defending

e.g. settlement

Question 45

Permissive indemnification: officer or director eligible if…

and who determines eligibility

Answer 45

meets duty of loyalty standard:

acted in good faith and with reasonable belief that actions were in company’s best interests

disinterested directors, disinterested shares, independent legal counsel