Directors and Officers Flashcards
After directors are initial elected, by being named in the articles of incorporation or by being elected by the incorporators, how are they eleven?
By shareholders at the annual shareholders’ meeting.
Can shareholders remove directors that are not on a staggered board?
Yes. With or without cause.
How can shareholders remove directors on a staggered board?
With cause.
What are staggered boards?
Boards in which the directors serve limited and definite terms.
Do individual directors have the ability to bind corporations?
No. They must act as a group.
How can directors act in a fashion that binds corporations?
- Unanimous agreement in writing
2. At a meeting that meets the quorum and voting requirements
When is notice required?
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.
What happens if notice isn’t given?
The resolutions of the meeting are void.
Can notice defects be waived?
Yes, but the waiver must be in writing.
How do quorum meetings work?
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.
Boards can create committees of directors to run special projects. But, committees cannot do what?
- Declare distributions
- Approve fundamental changes
- Fill board vacancies
What is the fiduciary duty directors owe to the corporation?
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.
In order to show a breach of the duty of care, must there be harm to the company?
Yes.
Who has the burden of showing a director violated his duty of care to the corporation?
The plaintiff.
Who holds the burden in breach of loyalty cases?
The defendant.
When will apparently self-dealing resolutions be set aside?
When
- The deal was fair to the corporation when entered, or
- 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
Can directors be protected from liability by exculpatory provisions in the corporation’s articles?
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.
What is the business judgment rule?
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.
Can the articles of incorporation limit a director’s liability?
Yes.
When can the articles of incorporation not limit a director’s liability?
When the liability stems from
- the amount of financial benefit received by the director to which he is not entitled,
- An intentionally inflicted harm on the corporation or its shareholders
- An unlawful corporate distribution, or
- An intentional violation of criminal law
What are the elements of the business judgment rule?
Under the business judgment rule, Director’s are shielded form liability when they conducted the business:
- In good faith
- With the care that an ordinarily prudent person in a like position would exercise under similar circumstances, and
- In a manner the directors reasonably believed to be int he best interest of the corporation.
When will a corporate decision that poses a conflict of interest with one of the directors be upheld?
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.
What are the powers of a president of the corporation?
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.
What are the notice requirements for calling board meetings?
Regular meetings: do not require notice.
Special meetings: two days before the meeting
