Directors: Requirements and Role Flashcards
Directors - Basics
- responsible for the management of the business + affairs of the corporation
Statutory Reqs for Directors - Qualifications
- must be adult natural persons (human beings w/ legal capacity)
- need not be SHs in the corp or residents of any particular state (UNLESS articles or bylaws state otherwise)
- any qualifications for directors prescribed by the articles or bylaws must be reasonable + lawful
-> no qualification may limit the ability of a director to discharge duties
Statutory Reqs for Directors - Number
- need one or more
- number can be set in articles or bylaws -> can require as many directors as desired
Statutory Reqs for Directors - Election
- initial directors may be named in the articles
- if not, they’re elected by the incorporators at the organizational meeting
- after this, SHs elect directors
-> directors elected at each annual SH meeting, subject to contrary provisions in the articles
Staggered Board
- entire board elected each yr unless there’s a “staggered” board
-> usually set out in articles - staggered board divided into half or thirds -> one half or one third elected each yr
Statutory Reqs for Directors - Removal
- SHs can remove dirs before their terms expire
-> can remove w/ or w/o cause (although in some states, only w/ cause if staggered bd)
Situational Limits on SH Power to Remove Dirs
- dir elected by cumulative voting can’t be removed if the votes cast against removal would be sufficient to elect her if cumulatively voted at an election of dirs
- dir elected by voting group of shares can be removed only by that class
Statutory Reqs for Directors - Vacancies
- can arise (ex dir resigns)
- bd selects dir for rest of term
-> BUT SHs do it if they created the vacancy by removing dir
Board Action - Group Req
- board of directors must act as a group
- SO indiv dir is NOT an agent of the corp -> NO authority to speak for or bind the corp
-> b/c entire board of directors must act as a group
Potential Ways of Board Acting as Group
- unanimous agreement in writing (email OK, + separate docs are OK) OR
- at a meeting, which must satisfy certain voting + quorum reqs
Ratification of Defective Corporate Actions
- dirs, incorporators + officers may ratify defective corporate actions (actions that are void or voidable due to failure of authorization)
- to ratify, board of directors must state the action to be ratified + nature of the failed authorization, approve the ratification + seek SH approval if necessary
Types of Board Meetings + Notice
- method for notice usually specified in bylaws
- can have regular or special meetings
-> for regular meetings, notice not required
-> for special meetings, need at least two days’ written notice of date, time + place (notice need not state purpose though)
Board Meetings - Failure to Give Notice
- if you don’t give required notice, whatever happened at the meeting is voidable (maybe even void) UNLESS the directors who weren’t notified waive the defect
How do directors waive defect of lack of notice?
Those who weren’t notified can waive:
1) in writing at any time OR
2) by attending the meeting w/o objecting at the outset of the meeting
Board Meetings - Proxies
- directors CANNOT give proxies or enter into voting agreements for how they will vote as directors
-> any efforts to do so are void - rationale: owe corp non-delegable fiduciary duties (vs. SHs actually don’t)
Board Meetings - Quorum
- need quorum for any board meeting
- quorum = majority of all directors, unless the bylaws say otherwise (but can be no fewer than one third of board members)
-> w/o quorum, board can’t act
Board Meetings - Approval of Action
- if quorum present at a meeting, passing a resolution (how the board takes action at a meeting) requires only a majority vote of those present
- ex: 9 dirs, 5 attend -> only need 3 to pass resolution
Board Meetings - Broken Quorum
- quorum can be lost if people leave
- once quorum no longer present, board CAN’T take action at that meeting (different from SH voting)
Action by Unanimous Written Consent
- any action required to be taken by the directors at a formal meeting may be taken by unanimous consent, in writing, without a meeting
Exam Tip - Directors + Actual Authority
- q’s often test where no meeting + one dir enters into extraordinary contract w/ approval of some dirs or by calling all dirs individually
- recognize dir doesn’t have power to bind corp in K unless they have ACTUAL authority to act -> generally can arise only if:
1) proper notice was given for a directors’ meeting, a quorum was present, and a majority of the directors approved the action OR
2) unanimous WRITTEN consent of the directors
Role of the Board of Directors - Overview
Manages corp -> includes:
- sets it policy
- supervises officers
- declares distributions
- determines when stock will be issued
- recommends fundamental corp changes to SHs
Board - Committees
- unless articles or bylaws provide otherwise, board can create one or more committees, w/ one or more members + appoint members of the board of directors to serve on them
-may act for the board, but the board remains responsible for supervision of committees - note that board can also delegate authority to officers
Committees - Limits on Action
Board CAN delegate actions to committees, BUT committee CAN’T take the following actions:
- declare a distribution
- fill a board vacancy
- recommend a fundamental change to SHs
- BUT committee CAN recommend such actions to full board for its action
