Directors and Officers Flashcards
SH elect directors when?
At the annual meeting
SH elect the entire BOD each year unless the board is . . .
Classified
For what reasons may SH remove directors?
Any
When can SH only remove Directors for cause?
Classified board
Vacancy on Board. Who selects to serve the remainder of the term?
Majority of remaining directors.
The BOD must act as a . . .
Group
The BOD can act in one of two ways.
By unanimous agreement in writing; or
At a meeting (which has to satisfy the quorum and voting requirements)
Is a director an agent of the corp?
No
Is an officer an agent of the corp?
Yes
Is notice required for regular BOD meetings?
No
Is notice required for special BOD meeting?
Yes
How much notice for special BOD meeting?
5 days (time and place) unless bylaws say otherwise.
Can directors give proxies or enter voting agreements for how they will vote? Why?
No
They have a nondelegable fiduciary duty as directors.
Meetings of the BOD require a quorum. How many is that?
Majority
If a quorum is present, passing a resolution requires how many votes?
Majority
Can a quorum be broken?
Yes
Generally, who manages the business?
BOD
The BOD can delegate some responsibilities to a committee. However, a committee cannot do these three things.
Amend by laws
Fill a vacancy
Submit a fundamental corp change to SH
** what is a director’s duty of care? **
A director must discharge her duties in good faith and with reasonable believe that what she does is in the corporation’s best interest.
She must act with that degree of care a PRUDENT PERSON would use with regard to her own business. In doing so, a director is NOT required to consider the interest of any particular group as controlling.
A director must discharge her duties in ____ _____ and with ________ believe that what she does is in the corporation’s best interest.
Good Faith
Reasonable
A director must act with that degree of care a ______ ______ would use with regard to her own _______. In doing so, a director is NOT required to consider the interest of any particular group as controlling.
PRUDENT PERSON
Business
A director is held to a ____ _____ standard
Prudent Person
In fulfilling her duties to the corp, a director is/isn’t required to consider the interest of any particular group as controlling.
Isn’t
A ______ must discharge her duties in good faith and with reasonable believe that what she does is in the corporation’s best interest.
Director
JT, a director of C Corp, fails to attend any of the BOD meetings and otherwise keep himself abreast of the corp’s business. Will he be held liable for breach of the duty of care?
Only if his breach caused a loss to the corp.
In order to be liable for a breach her duty of care to the corp, a director’s breach must . . .
Cause a loss to the corp.
In a breach of duty of CARE, who is the burden of proof on?
P
D, a director, was an antitrust expert and breached his duty of care by never attending meetings. In his absence, corp approved a k that violated antitrust laws and exposed the corp to liability. Is D liable? Why?
Arguably yes.
He did not act as a prudent person and his breach caused the corp to lose money. Had he been there, the corp would likely not have acted the way it did.
A Director is/isn’t a guarantor of success.
Isn’t
A director will not be held liable if he meets the ____ ____ Rule
Business Judgment Rule
What is the Business Judgment Rule?
A court will not second-guess a business decision IF it was made in good faith, was informed, and had a rational basis
Under the BJR, a court will not second-guess a business decision if these THREE things are true.
it was made in good faith,
was informed, and
had a rational basis
When a director is accused of breaching the duty of ____, the burden of proof is on the Defendant.
Loyalty.
Why does the BJR not apply to help directors in breach of loyalty cases?
It cannot apply where there is a conflict of interest.
A director owes a duty of care and a duty of ____ to the organization
Loyalty
An INTERESTED DIRECTOR TRANSACTION will be set aside unless the director shows . . . (2 options)
The deal was fair to the corp when entered OR
Material facts and her interest were known and the deal was approved in good faith by SH or majority of disinterested directors.
A direct can support an interested director transaction by showing that the deal was fair to the corp when entered OR material facts and her interest were known and the deal was approved in good faith by either . . .
SH or majority of disinterested directors.
Do interested directors count toward a quorum of D’s who vote to approve an interested director transaction?
Yes
Do interested directors count toward a vote of D’s who vote to approve an interested director transaction?
No
What is an interested director transaction?
Any deal between the corp and one of its directors OR another business of the director’s.
What is the rule regarding the duty of loyalty and competing ventures?
A director CANNOT compete unfairly with the corp.
What is the remedy for breach of the duty of loyalty when competing ventures are involved?
Constructive trust on profits.
A director cannot ____ a corporate opportunity
Usurp
A director cannot usurp a corp. opp. This means he cannot take until . . . (2)
He tells the BOD
The BOD decides to reject.
What is a corporate opp?
Something the corp needs OR has an interest or expectancy in OR is related to present or prospective business
Can a director defend a U of a C O by saying that the corp lacked the financial means to take it?
No
Remedy for usurpation of corp opp?
constructive trust
Which directors are liable for all the things directors can do wrong?
Those directors who did not dissent IN WRITING in the corporate records.
If a director voted for something that exposes her to liability, what defense can she raise?
Good faith reliance on:
Book value of assets
Financial statements by auditors or accountants
Opinions of other Directors.
If a director voted for something that exposes her to liability, what defense can she raise? Good faith reliance on . . . ( one of 3 )
Book value of assets
Financial statements by auditors or accountants
Opinions of other Directors.
Who selects, monitors, and removes officers?
BOD
Generally, who hires and fires directors?
SH
Who hires and fires officers, generally?
BOD
Do SH hire and fire officers?
No
Director or officer is sued on behalf of the corp. In litigation, she has incurred costs, fees, fines, etc. She seeks reimbursement for corp. When will indemnification and reimbursement not be allowed?
When she was held liable to corp in underlying suit
Director or officer is sued on behalf of the corp. In litigation, she has incurred costs, fees, fines, etc. She seeks reimbursement for corp. When will indemnification and reimbursement be mandatory?
To the extent she wins a judgment on the merits or otherwise.
Director or officer is sued on behalf of the corp. In litigation, she has incurred costs, fees, fines, etc. She seeks reimbursement for corp. Does she have to win every claim to qualify for mandatory indemn?
No, she will be indemnified to the extent she won a judgment.
Director or officer is sued on behalf of the corp. In litigation, she has incurred costs, fees, fines, etc. She seeks reimbursement for corp. What would happen for indemnification to be permissive? What must director show?
Settlement
Must show she acted in good faith and with the reasonable belief that her actions were in the corp’s best interest.
Articles or bylaws can eliminate director liability for damages arising from a breach of duty of care, but not for these 3 things:
Breach of duty of loyalty
Reckless or intentional conduct
Wrongful personal benefit.
