Directors and Officers of Corporation

Question 1

Director Requirement

Answer 1

Must have one or more adult natural persons as director

Question 2

Election and Removal of Directors

Answer 2

Shareholders elect at annual meeting each year absent a staggered process

Shareholders may remove directors without cause and will generally select their replacement in that case

Question 3

Board of Directors and Committees

Answer 3

Manage the business collectively or delegated through board commitees(unless dividend or filling vacancies), which must be composed of two or more board members

Question 4

Board Action

Answer 4

At a meeting satisfying the following:
1. Notice of time/place (if not a general meeting) within two days
2. Quorum met at each vote in meeting = majority of all directors
3. Voting requirement met = majority of directors present
-Presence by any means
-withdrawal can break quorum
-any dissent or absention must be in writing to count
-approval by majority of directors present
**OR **

UNANIMOUS WRITTEN CONSENT

Question 5

Fiduciary Duties of Directors (Owed to Corporation, not SHs)

Answer 5

1. Duty of Care = reasonable person based on business judgment rule
2. Duty of Loyalty
3. Dutyo Disclose Material Info (non fiduciary)
   4.

Question 6

Business Judgment Rule

Answer 6

Court will not second guess a business decision in regards to director’s personal liability if:
1. informed = rational basis
2. made with care of a reasonably prudent purson
3. it was made in good faith; and
4. believed to be in best interest of corporation
5. Defense: Reasonable reliance on on opinions/reports by experts or reliable employees formed basis of opinions

Question 7

Duty of Loyalty

Answer 7

Duty to act in good faith and with reasonable belief action are in the Corporation’s best interest

Question 7

Breaches of Duty of Loyalty

Answer 7

1. Interested Direcctor Transaction= doing business w/ director or relative unless (i) fair to corp; (ii) interests disclosed; and (iii) approval by majority of disinterested directors OR shares at meeting –> EFFECT: Rescission in Equity or Damages
2. No Self Dealing unless authoroization and fair
3. No Usurping Corporate Opportunity = taking opportunity found on company time or using company resources for self unless (i) Corp. had good faith rejection * full dislcosure
4. Unfair Competition: Director may not compete with Corp

Question 8

Rights of Directors

Answer 8

1. Right to Compensation
2. Right to Indemnification for successful defense of claim
3. Unfettered right to access books and records

Question 9

Director Exculpation

Answer 9

Must be in articles and cannot exculpate duty of loyalty

Question 10

Officers

Answer 10

Day-Day Managers of Corporation that act as agents and may be removed by the board (who may owe them based on any employment contract)

-Generally not required (some states do) and generally can hold multiple positions

Question 11

Duties and Rights of Officers

Answer 11

Same as Directors

Question 12

Director Removal

Answer 12

-Only Shareholders may remove a director with or withiout cause
-Directors generally do not have power to remove other directors

Question 13

Corporate Opportunity Doctrine

Answer 13

Sub Rules:
1. Corporation’s interest does not extend to every conceivable business opportunity
2. The closer the opportunity is to the corp.’s line of business, the more likely court will find it is a corporate opportunity
3. Corporation’s lack of financial ability is NOT a defense
4. Damages: Corp can either (i) recover prfoits made by the directro; or (ii) force the director to convey the opportunity on a constructive trust theory