III. Directors and Officers

Question 1

Statutory Req. Directors

Answer 1

• Number 1 or more
• SH elect at the annual meting
• SH can remove director w/or w/out cause
• IF staggered Board, only remove w/cause
• Board or SH selects person if vacancy

BOD MUST act as a group: (1) Unanimous agreement in writing or (2) At a meeting (which has to satisfy the quorum and voting req. below)
-Individual directors have NO authority to speak or bind the corp. (OFFICERS are agents though)

IF Special meeting = Notice Required. MUST state time and place.

• Directors CANNOT give proxies or enter voting agreements for how they will vote as DIRECTORS (NON-DELEGABLE Duties)
• Quorum = Majority of ALL directors. Then Maj. of present. (CAN BE BROKEN if people leave)

Question 2

Role of Directors

Answer 2

Manage the biz of corp.

Can delegate to committees BUT CANNOT:

• Declare Dividends
• Set Director Compensation
• Fill a Board Vacancy

Question 3

DUTY OF CARE (Burden on the π)

Answer 3

Standard: “A director owes the corp. a duty of care. She must act in good faith and do what a prudent person would do w/regard to her own business.”

-Nonfeasance (Director does nothing) = He is liable ONLY IF his breach caused a loss to the corp.

• Misfeasance (Board does something that hurts the corp.) = State the duty of care standard. Here, the directors’ action caused a loss to the corp. BUT, a director is NOT liable if she meets the BJR.
  
  • Court will NOT 2nd guess

Question 4

DUTY OF LOYALTY (Burden on the ∆)

Answer 4

Standard: “A director owes the corp. a duty of loyalty. She must act in good faith and w/a reasonable belief that what she does is in the corp.’s best interest

-BJR CANNOT apply when there is a conflict of interest.

3 CLASSIFICATIONS:

(1) Interested Director Transaction = Any deal between the corp. and 1 of its directors (or a close relative) or another biz of the director’s
- State duty of loyalty standard
- Will be set aside UNLESS can show either: (i) Deal was fair to the corp. when entered OR (ii) Interest were disclosed or known and deal approved by either = (a) Maj. of disinterested directors (b) Maj. of disinterested shares

(2) Competing Ventures = Director CANNOT compete directly w/her corp. (Constructive trust on profits)
(3) Corporate Opportunity = State Duty of Loyalty Standard. Director CANNOT USURP a corporate opportunity. (i) Tell the board about it (ii) Waits for the board to reject the opportunity

Question 5

Other State Law Bases of Director Liability

Answer 5

• Ultra Vires Acts
• Improper Distributions (Pg. 32)
• Improper Loans
• Director is presumed to concur w/Board action unless her dissent or abstention is noted IN WRITING in corporate records (Minutes, Delivered in writing to presiding officer at the meeting, Written dissent to corp. immediately after the meeting)
  
  • Exceptions = An absent director; Good Faith Reliance on info. or professionally reasonably believed competent

Question 6

Officers

Answer 6

Owe the Same Duties of Care and Loyalty as Directors.

-So SH hire and fire directors, BUT Board hires and fires officers. Generally, SH do NOT hire and fire officers.

Question 7

Indemnification of Directors and Officers

Answer 7

3 Things:

(1) No indemnification allowed (if she is held liable to the corp. or to have received an improper personal benefit)
(2) Mandatory (If she wins a judgment so we pick up tab)
(3) Permissive (corporation MAY indemnify; Duty of Loyalty)

Provisions can eliminate liability in Duty of Care Cases