Corporations 3

Card Set Information

Author:
paul
ID:
23972
Filename:
Corporations 3
Updated:
2010-07-16 11:12:35
Tags:
Directors Officers
Folders:

Description:
Corporations 3 - Directors & Officers
Show Answers:

Home > Flashcards > Print Preview

The flashcards below were created by user paul on FreezingBlue Flashcards. What would you like to do?


  1. DIRECTOR REQUIREMENTS

    1) Who can be a director?
    2) Minimum number required by statute?
    3) Who/what sets the number of directors?
    1) ANY ADULT NATURAL PERSON can be a director

    2) AT LEAST ONE DIRECTOR is required by statute (BCL)

    3) NUMBER OF DIRECTORS can be set by any of the following

    • Bylaws (BL)
    • S/H action (meetings, voting)
    • BOD only if permitted by S/H BL
  2. DIRECTORS

    Under what circumstances may the following remove a director from the Board?

    1) Shareholders
    2) the Board
    1) SHAREHOLDERS may remove a director

    • FOR CAUSE: at any time
    • WITHOUT CAUASE: ONLY IF the certificate or BL allow it

    2) BOD MAY REMOVE A DIRECTOR only if certificate or BL allow it
  3. DIRECTORS

    How are vacancies on the Board filled

    1) Generally?
    2) When vacancy is created by S/H removal without cause?
    1) BOD selects who will serve remainder of term for vacated position

    2) SHAREHOLDERS decide the replacement
  4. DIRECTORS

    1) The (2) ways BOD can take a valid act
    2) Notice requirements for meetings
    3) What happens if notice is deficient?
    4) Waiver of notice?
    1) BOD ACTION IS VALID when acting as a group. Must have either

    • UNANIMOUS WRITTEN consent, or
    • MEETING of Board

    2) NOTICE REQUIREMENTS

    • NO NOTICE REQUIRED for REGULAR meetings IF TIME AND PLACE set in the BL
    • NOTICE REQUIRED for SPECIAL meetings (must state time and place)

    3) CONSEQUENCES OF DEFICIENT NOTICE—any actions taken at meeting are VOID

    4) DIRECTOR CAN WAIVE notice requirement by either of the following

    • in WRITING and SIGNED (anytime)
    • ATTENDING MEETING w/o objection
  5. DIRECTORS

    1) Can a director give a proxy for director voting?
    2) Can a director enter voting agreements on how they will vote as directors?
    1) NO—void as against public policy

    2) NO—void as against public policy
  6. BOARD OF DIRECTORS

    QUROUM REQUIREMENTS

    1) How many directors needed for a quorum?
    2) How many votes needed for director action?
    3) Must the quorum be continuous?
    1) MAJORITY OF THE "ENTIRE BOARD" (as though all positions were filled (not vacant))

    2) MAJORITY of votes from those directors ACTUALLY PRESENT

    3) QUORUM IS REQUIRED TO DO BUSINESS

    • breaking the quorum prevents BOD from continuing to do business
    • actions taken before break in the quorum are still valid
  7. BOARD OF DIRECTORS

    MODIFYING THE QUORUM

    1) Possible to DECREASE quorum requirement?
    2) Possible to DECREASE votes required to pass resolutions?
    3) Possible to INCREASE quorum requirement?
    4) Possible to INCREASE votes required to pass resolutions?
    1) YES—may DECREASE though CERTIFICATE or BL (but can never reduce below 1/3 of entire BOD))

    2) NO—cannot DECREASE votes required to pass resolutions

    3) YES—may INCREASE through CERTIFICATE only

    4) YES—may INCREASE through CERTIFICATE only
  8. Setting policy, monitoring and supervising OFFICERS, DECLARING dividends and other distributions, deciding when the corp. will ISSUE stock, and RECOMMENDING fundamental changes are all part of what?
    MANAGEMENT functions of the BOARD OF DIRECTORS
  9. Under what circumstances may the ENTIRE BOARD delegate SUBSTANTIAL management functions to a COMMITTEE?
    When the CERTIFICATE or BL allow the delegation
  10. What powers/responsibilities CANNOT BE DELEGATED to a committee of directors?
    • setting director COMPENSATION
    • FILLING a vacancy on the Board
    • submitting a FUNDAMENTAL CHANGE to S/Hs for approval
    • AMENDING the BL
  11. DUTY OF CARE***

    What duty of care is owed by a corporate director? (state the standard)
    A director must discharge her duties in GOOD FAITH and with that degree of diligence, care, and skill that an ORDINARILY PRUDENT PERSON would exercise under similar circumstances IN LIKE POSITION
  12. DUTY OF CARE***

    If a director breaches his duty of care owed to the corporation, is he liable?
    YES IF the breach CAUSED A LOSS to the corporation
  13. DUTY OF CARE***

    If a director does NOTHING (e.g., fail to attend BOD meetings or to keep abreast of business in any way), will he be liable?
    ONLY IF his breach of duty CAUSED a LOSS to the corporation (NB—special expertise)

    Example—How to analyze:

    1) STATE DUTY OF CARE ("discharge duties in good faith with the degree of diligence, care, and skill that a person of ordinary prudence etc.)

    2) APPLY ("a reasonably prudent person would attend meetings or at least keep abreast of business. Because neither was done, duty of care was breached")
  14. DUTY OF CARE***

    If a director DOES SOMETHING that hurts the corporation AND causation can be proved, will he be liable?
    ONLY IF the director's action falls outside the protection of the BUSINESS JUDGMENT RULE (BJR)
  15. DUTY OF CARE***

    What is the BJR?
    BJR means that a court WILL NOT SECOND GUESS a business decision if

    • it was made in GOOD FAITH,
    • was REASONABLY INFORMED, and
    • had a RATIONAL BASIS

    In other words, the director "did his homework" before acting
  16. DUTY OF LOYALTY****

    Recite the duty of loyalty applicable to the BOD
    A director must act in GOOD FAITH and with the conscientiousness, fairness, morality, and honesty that the law requires of FIDUCIARIES
  17. DUTY OF LOYALTY****

    Does the BJR apply where there is a breach of the duty of loyalty?
    NO—CONFLICT OF INTEREST principles apply; NOT the BJR
  18. DUTY OF LOYALTY****

    Interested director transactions, competing ventures, and usurping corporate opportunities are all examples of what?
    BREACHES OF THE DUTY OF LOYALTY
  19. DUTY OF LOYALTY****

    If the corporation engages in a transaction with one of its directors (an INTERESTED DIRECTOR TRANSACTION), MUST transaction be set aside?
    WILL BE SET ASIDE UNLESS DIRECTOR CAN SHOW either

    1) the deal was FAIR AND REASONABLE to the corporation when approved, OR

    2) the MATERIAL FACTS of the transaction and the DIRECTOR'S INTEREST were disclosed/known AND the deal was approved by ANY of the following

    • S/H action (i.e., signed written consent, s/h meeting),
    • a sufficient number of DISINTERESTED DIRECTORS
    • unanimous vote of disinterested Ds, IF the number of disinterested Ds are insufficient to take Board action

    NOTE—the presence of interested directors counts towards a quorum, but their votes are never counted
  20. DUTY OF LOYALTY****

    If a director COMPETES AGAINST the corporation of which he is a director, what result?

    1) State the duty
    2) Breach of the duty?
    3) If so, what remedy?
    1) Duty of loyalty—must avoid from conflicts with corporation's interests

    2) Competing against the corp. conflicts with the corp's interest, and is a breach of the duty of loyalty

    3) D must ACCOUNT to the corp. for any profits derived from the competing venture—i.e., corp. gets a CONSTRUCTIVE TRUST on any profits earned by the director's competing venture
  21. DUTY OF LOYALTY****

    A director cannot USURP a corporate opportunity.

    1) What does this mean?
    2) What is a "corporate opportunity"?
    3) What remedy?
    1) D cannot take the opportunity UNTIL he NOTIFIES THE BOD of the opportunity, AND the BOD REJECTS the opportunity

    2) "Something the corp. needs, has an INTEREST or TANGIBLE EXPECTANCY in, or that is LOGICALLY-RELATED to the corp's business"

    3) D must ACCOUNT for the usurped opportunity. E.g., in a case of wrongfully acquired property

    • D must sell it to the corp. at his cost, or
    • If D has sold the property, the corp. gets any profit D earned
  22. OTHER BASES FOR DIRECTOR LIABILITY

    1) Loans of corporate funds to directors?
    2) Which directors of the Board are liable?
    3) Requirements for dissent?
    4) Good faith defense?
    1) No liability BUT ONLY IF Bd. finds the loan would benefit the corp.

    2) All directors PRESUMED at act together (i.e., all liable), unless exception applies (e.g., dissent, good faith)

    3) Requirements for DISSENT—any of the following

    • dissent noted in corporate MINUTES
    • WRITING to corporate secretary AT THE MEETING
    • REGISTERED LETTER to the secretary promptly after the meeting

    4) GOOD FAITH RELIANCE on one of the following

    • officers/employees believed to be competent and reliable
    • attorneys/accountants believed to be competent
    • committee as to matters within its delegated authority
  23. OFFICERS

    1) What duties do Officers owe the corp?
    2) Authority to bind corp?
    3) Can one person hold multiple offices simultaneously?
    1) Same duties of care and loyalty as owed by DIRECTORS

    2) May bind the corp, IF they have AUTHORITY to do so (actual, implied, or apparent)

    3) May hold multiple offices—no limit on number of offices that can be held by one person
  24. OFFICERS

    1) Who selects officers?
    2) Who removes officers?
    3) Who sets officer compensation?
    1) BOD, unless CERTIFICATE allows S/H to do this

    2) BOD, unless

    • CERTIFICATE allows S/H to elect officers, or
    • ATTORNEY GENERAL sues for removal for cause, or
    • 10% of all shares sues for removal for cause

    3) BOD SETS COMPENSATION of officers
  25. INDEMNIFICATION OF DIRECTORS & OFFICERS*

    If a D/O incurs litigation expenses in defending against an action brought against him, can he be REIMBURSED by the corporation in the following situations

    1) D/O is held liable?
    2) D/O successfully defends on the merits?
    3) D/O acted in good faith and for a purpose reasonably believed to benefit the corp?
    4) Court orders reimbursement?
    1) PROHIBITED from reimbursement

    2) ENTITLED to reimbursement AS OF RIGHT

    3) Corp. has DISCRETION to reimburse

    4) MAY BE reimbursed, if court finds he is REASONABLY ENTITLED to it
  26. INDEMNITY OF DIRECTORS & OFFICERS*

    Can corp. advance litigation expenses to D/O?
    YES—must D/O must repay the expenses IF D/O is not entitled to reimbursement
  27. INDEMNITY OF DIRECTORS & OFFICERS*

    Can D/O be INDEMNIFIED?
    GENERAL RULE: CERTIFICATE or BL can INDEMNIFY D/O

    EXCEPT in the following cases

    • bad faith
    • intentional misconduct
    • received improper financial benefit
    • approved an unlawful distribution or loan
  28. INDEMNITY OF DIRECTORS & OFFICERS

    SUMMARY: the most important issues
    • Duty of loyalty
    • Duty of care
    • Removal from office
    • Indemnification

What would you like to do?

Home > Flashcards > Print Preview