Directors & Officers Flashcards
what is the BoD responsible for
generally responsible for corp affairs and management
what are the number of directors in the BoD
provided for in bylaws or articles; can be a variable range, but there must be at least one director
how are directors elected/removed
Election — elected by shareholders at annual shareholder meeting
Removal — may be removed with or without cause by shareholders unless articles provide for removal only with cause
what is the deal with a staggered board
usually the entire board is elected each year unless there is a “staggered board”
- here the board is divided in half or into thirds with one half or one third elected each year
what are BoD meetings
board may hold regular or special meetings
Can be held in person or through any means by which all participating directors can simultaneously hear one another (e.g., videoconference)
what is the notice requirement for a BoD meeting
regular meetings may be held without notice, but special meetings require two-day notice
what is the quorom requirement for a BoD meeting
usually set by articles but, if not, quorum consists of majority of the number of directors in corp
- if quorum is present at the meeting, need a majority of those present to vote in favor to pass
- e.g., board is 9 members, 5 come to meeting, 3 are needed to pass a resolution
when can the BoD take action without a meeting
BoD can take action without a meeting if all directors provide written consent describing the action taken
how can the BoD delegate authority
BoD does not run the day-to-day of the corp, but rather delegates management to officers and executives
can directors use proxies to vote at board meetings
no; this is because directors owe the corp a non-delegable fiduciary duty
what are board committees
BoD may create committees, each comprised of one or more BoD members, with power to oversee corp affairs
- Limitation — cannot make major corp decisions requiring full BoD consent
what is the duty of care owed by directors/officers and how is that judged
Duty of care: must use the care that a person in a like position would reasonably believe appropriate under the circumstances
- in determining whether that duty was breached, courts apply the Business Judgment Rule
- I.e., a director/officer act that fails to pass scrutiny under the Business Judgment Rule will be deemed a breach of the duty of care
what is the business judgement rule (BJR)
courts will not second guess a poor or erroneous decision made by a director or officer if the decision was made:
- 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 director/officer reasonably believed to be in the best interests of the corp
what is the liability of officers/directors breaching the duty of care
if a director/officer breaches their duty of care, they can be held personally liable for damages
Articles can limit directors/officers’ personal liability
what can the articles NOT limit director/officer liability for
- Intentional violations of law,
- Unlawful corp distributions,
- Receiving unentitled financial benefits, or
- Intentionally inflicted harm on the corp or its shareholders
what is the duty of loyalty owed by directors/officers
Duty of Loyalty: must discharge duties in good faith and with the reasonable belief their actions are in the best interest of the corporation
Arises with conflicts of interest or usurpation of a corp opportunity
what is a conflict of interest for officers/directors and when does one occur
Officer/director has a personal interest in some transaction in which the corp is a party
Occurs if officer/director knows that he and/or a family member is:
- A party to the transaction,
- Has a beneficial financial interest or is closely linked to the transaction such that it could reasonably be expected to influence how the director/officer votes on the transaction, or
- Is affiliated with another entity that is party to the transaction (E.g., is an agent, employee, etc. of the other entity)
what is the “safe harbor” for potential conflict of interest violatoins
Officer/director with a potential conflict of interest in a transaction will not be personally liable if the transaction is either:
- Fair to the corp given circumstances existing at the time, OR
- Approved, after material facts have been disclosed, by either 1) disinterested shareholders, or 2) a majority of disinterested board members
what factors will a court look at to see if a self-dealing transaction was fair
- adequacy of consideration
- corporate need to enter into the transaction
- financial position of the corporation
- others
what does usurpation of corporate opportunities mean
Duty of loyalty prevents officers/directors from diverting a business opportunity to themselves where:
- Corp would have an interest or expectancy in the opportunity; and
- Officer/director does not give corp an opportunity to act first
what is the relationship of an officer to the corporation
the officer is an agent of the corporation, so agency law determines the authority and powers of the officer
how does an officer’s individual actions become binding on the corp
whether the officer can bind the corp is determined by whether they have agency authority to do so
- the corp is liable to actions of the officers within the scope of their authority (i.e., actual or apparent)
how are officer duties determined
determined in the bylaws; owe the same duty of care and loyalty to the corp that directors do
