Directors and Officers

Question 1

Statutory requirements for Director (adult natural persons)

Answer 1

• One or more
• Initial director named in articles, shareholders elect oter directors at annual meeting
• Shareholders can remove directors before terms expire (gen requires majority of shares entitled to vote)
• Can remove with or without cause (unless staggered board, then must be with cause)
• If vacancy on board, board or shareholders selects new director (unless shareholders created vacancy by removing director, then shareholder must select replacement)
• Board of directors must act as group (unanimous agreement or in writing OR at meeting where satisfy quorum and voting requirements)

Question 2

Staggered Board

Answer 2

Usually set in articles. Usually entire board selected each year but if staggered board it’s divided into half or thirds, with one half or one-third elected each year

Question 3

What if directors agree to corporate act through individual convserations withotu meeting or unanimous written agreement?

Answer 3

Act is void unless ratified by valid act

Question 4

Are individual directrors agents of corporation?

Answer 4

No, have no authority to speak for or bind corporation

Question 5

Officers

Answer 5

agents of corporation

Question 6

Board meeting

Answer 6

• Method for giving notice set in bylaws
• Notice not required for regular meetings
• Notice required for special meetings plus time & place
• Failure to give required notice voids meeting unless directors not notified waive notice defect

Question 7

How do not notified directors waive notice defect

Answer 7

Writing anytime or attending meeting without objecting

Question 8

Can directors give proxies or enter voting agreements for how vote as directors?

Answer 8

No, void because directors are non-delegable duties to corporation

Question 9

Quorum for meetings of board

Answer 9

• For any board meetings, need quorum. Unless bylaws say otherwise, quorum is majority of all directors
• If quorum is present, passing a resolution requires only majority of those present
• Quorum can be lost if people leave

Question 10

Role of directors

Answer 10

Manage business of corporation: sets policy, supervises officers, declares distributions, determines when stock will be issued, recommend fundamental corp changes to shareholders, etc.
-Committee of one or more drectors cannot declare dividends, set director compensation, fill a board vacancy

Question 11

Duty of care (director)

Answer 11

• Burden on P
• A direcctor owes corporation duty of care, must act in good faith adn do what a prudent person would do with regard to her own business
• Remember BJR

Question 12

Nonfeasance

Answer 12

Director does nothing. Liable only if breach caused a loss to corporation

Question 13

Misfeasance

Answer 13

Director does something that hurts the corporation (causation clear)

Question 14

Business Judgment Rule

Answer 14

Court will not second guess a business decision if made in good faith, was informed, and had a rational basis

Question 15

Duty of loyalty (Director)

Answer 15

Burden on D. Director owes corporation a duty of loyalty. She must act in good faith and with a reasonable belief that what she does is in the corporation’s best interest.

BJR will nto apply when conflict of interest

Question 16

Interested Director Transaction

Answer 16

• Any deal between the corporation and one of its directors (or close relative of director) or another business of director
• Interested director transaction will be set aside (or director liable in damages) UNLESS director can show either (1) deal was fair to the corporation when entered, OR (2) interest and relevant facts were disclosed and deal approved by either majority of disinterested directors or majority of disinterested shares
• Some courts also require showing of fairness

Question 17

Special Quorum Rule

Answer 17

In many states, interested directors count towards a quorum

Question 18

Directors setting own compensation

Answer 18

Must be reasonable and in good faith. If excessive, it’s a waste of corporate assets, and breach of duty of loyalty

Question 19

Competing Ventures

Answer 19

Breach of duty of loyalty -director cannot compete directly with her corporation. Remedy = constructive trust on profits

Question 20

Corporate Opportunity (Expectancy)

Answer 20

Breach of duty of loyalty -director cannot usurp a corporate opportunity so cannot take it unless (1) tells board oabout it, and (2) waits for board to reject opportunity

Corp opp = something in corp’s business line, has interest or expectancy in, or that was found on company time with company resources

Financial inability to pay for opp not a defense. Remedy - must sell opp to corp at own cost (or corp gets profit if sold for profit)

Question 21

Constructive Trust

Answer 21

Equitable Remedy resembling trust that benefits party wrongfully deprived of rights b/c held by other party.

Question 22

State Law Bases for Director Liability

Answer 22

• Ultra vires acts
• Improper distributions
• Improper loansq

Question 23

Dissent to avoid director liability

Answer 23

Director presumed to concur with board action unless dissent or abstention noted in writing in corp records

In writing = in minutes or delivered in writing to presiding officer at meeting or written dissent to the corporation immediately after the meeting

Exception: absent director, good faith reliance on info

Question 24

Officers

Answer 24

agents of corporation, owe same duties as directors. One person can hold multiple offices simultaneously. Officers must be selected adn removed by board (sets $)

Question 25

Barred Indemnification of Directors and Officers

Answer 25

Corp barred from indemnification for preson who has been sued by or on behalf of corp in capacity as officer or director if held liable to corp or to have received improper personal benefit

Question 26

Improper Loans

Answer 26

Not improper if reasonably expected to benefit the corporation

Question 27

Mandatory Indemnification of Directors and Officres

Answer 27

If successful in defending corp and wins a judgment

Question 28

Permissive Indemnification of Directors and Officers

Answer 28

May indemnify anything other than person being sued by corp and losing or defending corp (e.g. settlement)

Must show acted in good faith and with reasonable belief that actions in comp’s best interest (duty of loyalty). Disinterested directors or shares or independent legal counsel determine eligibility

Court where sued can order reimbursement if justified in view of all circ