FACT PATTERN 3: DIRECTORS AND OFFICERS (HEAVILY TESTED)- OTHER STATE LAW BASES OF DIRECTOR LIABILITY

Question 1

Are responsible directors and offcers held responsible for ultra vires losses?

Answer 1

Yes

Question 2

Is a purely personal loan to a director ok?

Answer 2

No

Question 3

Under what circumstances would a loan to an officer or a director be ok?

Answer 3

only if it is reasonably expected to benefit the corporation.

Question 4

Is a loan to a director to attend business school ok?

Answer 4

Yes, this would improve your ability to do your job for the company.

Question 5

What does the Sarbanes Oxley Act generally forbid?

Answer 5

generally forbids loans to executives in large, publicly traded (“registered”) corporations.

Question 6

What does the Sarbanes Oxley Act require a large publicly corporation to do for the services they get from a registered accounting firm?

Answer 6

establish an audit committee and oversee work of registered public accounting firm.

Question 7

Under the Sarbanes Oxley Act, What must CEOs and CFOs do?

Answer 7

certify accuracy and completeness of financial reports.

Question 8

A director is ________________to concur with board action

Answer 8

Presumed

Question 9

When is a director not presumed to agree with a BOD action?

Answer 9

her dissent or abstention is noted in writing in corporate records.

Question 10

What does in writing mean (in relation to non-resumption of a BOD action)?

Answer 10

(1) in the minutes or
(2) delivered in writing to the presiding officer at the meeting or
(3) written dissent delivered to the corporation immediately after the meeting.

Question 11

Is oral dissent enough to rebut the presumption of a director concurring with a BOD action?

Answer 11

oral dissent alone is not effective.

Question 12

What are the exceptions to presumption of concurrence with a BOD action?

Answer 12

1 . An absent director is not liable for stuff done at the meeting she missed.
2. . A director is entitled to rely in good faith on information (including financial information) presented by an officer, employee, or committee (of which the relying director was not a member), or professional reasonably believed competent. (defense to liability)

Question 13

What fiduciary duties do officers owe?

Answer 13

Care and loyalty, same as directors

Question 14

What is the status of an officer of a corporation?

Answer 14

Officers are agents of the corporation

Question 15

Traditionally, what officers must a corporation have?

Answer 15

must have a president, secretary, and treasurer.

Question 16

Today, can one person hold multiple offices of a corporation simultaneously?

Answer 16

Yes

Question 17

Who selects and removes officers?

Answer 17

The BOD

Question 18

Who sets officer’s compensation?

Answer 18

The BOD

Question 19

The board of Hair Care Extraordinaire, Inc. appoints John Stamos as president. What happens if it fires him from the presidency?

Answer 19

The board can remove officers but may have to pay damages if there was an employment contract.

Question 20

Can shareholders generally fire and hire officers?

Answer 20

Generally, shareholders do NOT hire and fire officers

Question 21

When is indemnification not allowed for an officer or director?

Answer 21

If she was held liable to the corporation or was held to have received an improper personal benefit.

Question 22

When is indemnification mandatory for an officer or director?

Answer 22

If she is successful in defending, on the merits or otherwise. (Statute of limitations can fall under or otherwise)

Question 23

When is indemnification permissive for an officer or director?

Answer 23

Any situation not satisfying circumstances barring or mandating indemnification to the officer or director.

Question 24

What is a good example of when indemnification is permissive for an officer or director?

Answer 24

If the case against her settled.

Question 25

How does an officer show that they are eligible to be indemnified?

Answer 25

Must show she acted in good faith and with the reasonable belief that her actions were in the company’s best interests. (its the loyalty standard)

Question 26

Who determines eligibility of indemnification for directors or officers?

Answer 26

Disinterested directors or disinterested shares or independent legal counsel.

Question 27

Can a court where the director or officer was sued order reimbursement?

Answer 27

Yes, if it is justified in view of all the circumstances

Question 28

Can the articles eliminate liability to the corporation for improper personal benefit?

Answer 28

No

Question 29

Can the articles eliminate liability to the corporation for intentional misconduct?

Answer 29

No

Question 30

Can the articles eliminate liability to the corporation for usurping corporate opportunities?

Answer 30

No

Question 31

Can the articles eliminate liability to the corporation for unlawful damages?

Answer 31

Yes

Question 32

Do these exculpatory provisions in the articles apply to officers too?

Answer 32

There is a split of authority.