Corporations 3

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

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

1) BOD selects who will serve remainder of term for vacated position

2) SHAREHOLDERS decide the replacement

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

1) NO—void as against public policy

2) NO—void as against public policy

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

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

MANAGEMENT functions of the BOARD OF DIRECTORS

When the CERTIFICATE or BL allow the delegation

• setting director COMPENSATION
• FILLING a vacancy on the Board
• submitting a FUNDAMENTAL CHANGE to S/Hs for approval
• AMENDING the BL

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

YES IF the breach CAUSED A LOSS to the corporation

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")

ONLY IF the director's action falls outside the protection of the BUSINESS JUDGMENT RULE (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

A director must act in GOOD FAITH and with the conscientiousness, fairness, morality, and honesty that the law requires of FIDUCIARIES

NO—CONFLICT OF INTEREST principles apply; NOT the BJR

BREACHES OF THE DUTY OF LOYALTY

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

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

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

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

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

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

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

YES—must D/O must repay the expenses IF D/O is not entitled to reimbursement

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

• Duty of loyalty
• Duty of care
• Removal from office
• Indemnification