Directors and Officers

Question 1

After directors are initial elected, by being named in the articles of incorporation or by being elected by the incorporators, how are they eleven?

Answer 1

By shareholders at the annual shareholders’ meeting.

Question 2

Can shareholders remove directors that are not on a staggered board?

Answer 2

Yes. With or without cause.

Question 3

How can shareholders remove directors on a staggered board?

Answer 3

With cause.

Question 4

What are staggered boards?

Answer 4

Boards in which the directors serve limited and definite terms.

Question 5

Do individual directors have the ability to bind corporations?

Answer 5

No. They must act as a group.

Question 6

How can directors act in a fashion that binds corporations?

Answer 6

1. Unanimous agreement in writing

2. At a meeting that meets the quorum and voting requirements

Question 7

When is notice required?

Answer 7

When the board has a meeting.

For general meetings the notice requirement is determined in the bylaws.

For special meetings the notice requirement is two days before the meeting unless the bylaws say otherwise.

Question 8

What happens if notice isn’t given?

Answer 8

The resolutions of the meeting are void.

Question 9

Can notice defects be waived?

Answer 9

Yes, but the waiver must be in writing.

Question 10

How do quorum meetings work?

Answer 10

A quorum is formed when a majority of all directors gather.

In order to pass a resolution through a quorum, a majority of the the directors must vote for the resolution.

Question 11

Boards can create committees of directors to run special projects. But, committees cannot do what?

Answer 11

1. Declare distributions
2. Approve fundamental changes
3. Fill board vacancies

Question 12

What is the fiduciary duty directors owe to the corporation?

Answer 12

A director must discharge her duties in good faith and with the reasonable belief that her actions are in the best interest of the corporation. She must use the care that a person in like position would reasonable believe appropriate under the circumstances.

Question 13

In order to show a breach of the duty of care, must there be harm to the company?

Answer 13

Yes.

Question 14

Who has the burden of showing a director violated his duty of care to the corporation?

Answer 14

The plaintiff.

Question 15

Who holds the burden in breach of loyalty cases?

Answer 15

The defendant.

Question 16

When will apparently self-dealing resolutions be set aside?

Answer 16

When

1. The deal was fair to the corporation when entered, or
2. The interest and relevant facts were disclosed or known and the deal was approved by either (i) a majority of disinterested directors or (ii) a majority of shares

Question 17

Can directors be protected from liability by exculpatory provisions in the corporation’s articles?

Answer 17

Yes. But, there are exceptions. If the directors (i) received a benefit to which they were not entitled, (ii) intentionally harmed the corporation, (iii) approved an unlawful distribution, or (iv) intentionally committed a crime, then they will be liable despite the exculpatory article provisions.

Question 18

What is the business judgment rule?

Answer 18

The business judgment rule is a presumption that a director’s decision may not be challenged if the director (i) acted in good faith, (ii) with the care that an ordinarily prudent person would exercise in a like position, and (iii) in a manner the director reasonably believed to be in the best interest of the corporation.

Question 19

Can the articles of incorporation limit a director’s liability?

Answer 19

Yes.

Question 20

When can the articles of incorporation not limit a director’s liability?

Answer 20

When the liability stems from

1. the amount of financial benefit received by the director to which he is not entitled,
2. An intentionally inflicted harm on the corporation or its shareholders
3. An unlawful corporate distribution, or
4. An intentional violation of criminal law

Question 21

What are the elements of the business judgment rule?

Answer 21

Under the business judgment rule, Director’s are shielded form liability when they conducted the business:

1. In good faith
2. With the care that an ordinarily prudent person in a like position would exercise under similar circumstances, and
3. In a manner the directors reasonably believed to be int he best interest of the corporation.

Question 22

When will a corporate decision that poses a conflict of interest with one of the directors be upheld?

Answer 22

When (i) the transaction was approved by a majority of the directors without a conflicting interest after all martial facts were disclosed to the board (ii) the transaction was approved by a majority of the votes entitled to be cast by shareholders without a conflicting interest in the transaction after all material facts were disclosed to the shareholders; or (iii) the transaction, judged according to circumstances at the time of commitment, was fair to the corporation.

Question 23

What are the powers of a president of the corporation?

Answer 23

There is a presumption that the president has implied authority to enter into contracts and otherwise act on behalf of the corporation in the ordinary course of corporate affairs. The president is also deemed to have any actual authority that the corporation’s secretary certifies that the board has given to the president.

Question 24

What are the notice requirements for calling board meetings?

Answer 24

Regular meetings: do not require notice.

Special meetings: two days before the meeting

Question 25

Can directors use telecommunications devices to attend board meetings?

Answer 25

Yes. But they must be able hear and be heard by all the other directors or their vote will be void.

Question 26

Do special director meetings need to state a purpose?

Answer 26

No.

Question 27

Is the knowledge of officers and board members imputed to the corporation?

Answer 27

Yes.