Directors and Officers Flashcards
Election of Directors
Initial directors named in Articles; then SHs elect every year unless it’s a staggered board
Removal of Directors
SHs can remove directors with or without cause
BOD Action Requirements
Must act as a group; unanimous agreement in writing is OK OR meetings where there is a quorum
Effect: If directors try to act individually for board, act is VOID unless ratified by valid act
Quorum for BOD Meetings
Majority of all directors unless bylaws state otherwise; quorum can be lost if people leave
Passing a resolution requires only a majority of those actually present
Role of BOD
Manage the corporation; can delegate to a committee of one or more directors, but committee cannot declare distributions, fill a BOD vacancy, or recommend a fundamental change to SHs
Fiduciary Duty Owed to Corporation: Standard
A director must discharge her duties in good faith and with the reasonable belief that her actions are in the best interest of the corp. She must also use the care that a prudent person in like position would reasonably believe appropriate under the circumstances (DOL and DOC)
Duty of Care
BOP is on plaintiff to show breach by nonfeasance causing loss to the corporation or misfeasance not justified by the BJR
Business Judgment Rule (BJR)
Presumption that when the board took the act, it did appropriate homework; BOP is on the plaintiff to show BJR doesn’t protect
“Presumption that a director’s decision may not be challenged if the director acted in GF, with the care that an ordinarily prudent person would exercise in a like position, and in a manner the director reasonably believed to be in the best interest of the corporation”
Duty of Loyalty
BOP is on defendant to show no breach by self-dealing, competing ventures, or corporate opportunity; BJR doesn’t protect here
Self-Dealing (DOL)
Interested director transaction that renders director liable unless she shows (1) the deal was fair to the corporation when entered or (2) her interest and the relevant facts were disclosed/known and approved by either 2+ disinterested directors or a majority of the disinterested shares
Competing Ventures (DOL)
Director cannot compete directly with her corporation
Corporate Opportunity / Expectancy (DOL)
A director cannot USURP a “corporate opportunity,” i.e., something the company has an interest or expectancy in or something D found on company time or with company resources
Director Liability
Director presumed to concur with BOD action unless her dissent or abstention is noted in writing
Exceptions: absent from meeting, good faith reliance on info presented by offier, employee, committee or competent professional
Officer Duties, Selection, and Removal
Owe same DOC/DOL as directors because they are agents of the corporation; selected and removed by BOD
Indemnification of Directors and Officers: 3 Categories
(1) Corp cannot indemnify a direcor or officer who was held liable to the corp or to have received a improper benefit; (2) Corp must indemnify director or officer who prevailed in the case; (3) Corp may indemnify director or officer litigation expenses if she acted in GF with reasonable belief that she was acting in corp’s best interest
