Corporation Outline

Directors and Officers Statutory Requirements: Directors adult, natural persons Need one or more Initial Directors are usually named in the articles. Thereafter, Shareholders at elect them at the Annual Meeting. The entire board is elected each year unless

There is a staggered Board

Staggered Board: Divided into half or thirds or 1/3 are elected each year. Usually indicated in the Articles of Incorporation Need votes by the Majority of shareholders entitled to vote- in order for them to remove a director before their term expires. (with or without cause) Vacancies on the Board- the shareholders or the BOD will select who will serve on the Board for the rest of the term. Exception: If a Shareholder created the vacancy by removing the director the shareholders generally must select the replacement Board of Directors can take an act in only 2 possible ways: 1. Unanimous agreement in writing or 2. at a meeting which has to satisfy the Quorum and voting requirements below

Quorum for meeting of the Board: Must have Majority of all Directors to do business unless a different percentage is set in the Bylaws

If directors agree to an act through individual conversation the act will be void unless ratified by Valid Act. Conference call simultaneous oral communication so each can hear all others count as a meeting Notice required for Special Meetings where and when must be stated

 Failure to give notice can be waived in writing anytime or by attending the meeting w/o objecting to lack of Notice Directors cant give proxies or enter voting agreements for how they will vote If quorum is present at the meeting passing a resolution requires only the majority vote of those present.

If 9 directors- 5 must be at meeting and 3 must vote for the resolution to pass If quorum is lost- people leave- no act

Role of Directors 1. Manages the business of corporation 2. Sets policies 3. Supervises officers 4. Declares distributions 5. Determines when stocl will be issued 6. Recommends fundamental corporate changes to shareholders The board can delegate to a committee with 1 or more directors, but they are not allowed to declare dividends Committee can recommend such things to the full board for its actions

Duty of Care
Duty of care: Standard that directors owe corporations. She must act good faith as a reasonable prudent person would do with regard to her own business. Nonfeasance- Director who does nothing

A director who doesnt go to meetings and doesnt do anything- he has breach his duty or reasonable care. A prudent person would He is liable only if his breach caused a loss to the corporation Need causation

Misfeasance: Board does something that hurts the corporation

An action by a director that causes loss to the corporation will not make the Director Liable if she meets the Business Judgment rule.

Prudent People Do appropriate Homework Facts! Deliberate and Analyze Court will not second guess a Business Decision if it was made in good faith, was informed, and had a rational basis.

Duty of Loyalty: Burden on the D

Duty of Loyalty Standard: A director owes the corporation a Duty of Loyalty. Good Faith and a reasonable belief, that what she does is in the corporations best interest.

Business Judgement does NOT apply because there is a conflict of interest

Interested Director Transaction: Any deal between the corporation and 1 of its directors or another Business of the Directors. State the Duty of Loyal standard. Interested Directors transavtion will be set aside or the director will be liable in damages. Unless Director can show: 1. The deal was fair to the corporation when entered 2. Her interest and the relecant facts were disclosed or known and the deal was approved by majority of directors or disinterested shares.
In many states interested directors count toward the quorum. Even if the

deal is approved by an appropriate group some states require a showing of fairness.

Directors can set aside their own compensation as directors or officers, but it

must be reasonable and in Good Faith if excessive its a waste of corporate assets and a breach of the duty of loyalty.

Competing Ventures Defendant cant compete directly with her corporation, but may be on the BODs for more than one corporation as long as they dont compete If she goes into competition constructive trust on profits Corporate Opportunity Expectancy Duty of loyalty standard. A Director cannot USURP a corporate opportunity. That means the director cant take it until he: 1. tells the board about it and 2. Wait for the board to reject the opportunity Corporate Opportunity Doctrine: Somethin in whch the company has an interest or expectancy or that the director found on company time or company resources. If the director has this particular interest he must sell it to the corporation at his cost and if the director has sold it for profit than corp gets the profit through constructivr trust. Other State Law Bases of Director Liability 1. Ultra Vires acts. Responsible officers and Directors are liable for losses 2. Improper distributions 3. Improper loans- only allowed where it is reasonably expexted to benefit corporation
4. Sarbanes Oxley Act Federal Law- forbids loans to exectives in large

publicliy trades registered corps. Requires an established audit committee

that oversees work of registered punlic accounting firms. Chief exec and financial os must certify accuracy/completeness of financial reports Rule: A Director is presumed to concur w board action unless her dissent or absentation is noted in writing in corporate records in corporate records. Meaning: 1. in the minutes or 2. delivered in writing to the presiding offerce at the meeting or 3. written dissent to tht ecorporation immediately after the meeting Oral dissent not effective alone. Exceptions: a. Absent director is not lianle for stuff done at meeting missed b. Good Faith reliance on info (financial info) presented by officer, employee or committee (which director is relying on was not a member or professional reasonably believed competent: Classic unlawful distribution

Officers
Same duty of care and loyalty that Directors owe Agents of the Corporation, so they can bind the corporation by acts they have authority to bind it

President has inherent authority to bind the corp in to contracts in the Ordinary Course of Business

Selected by and removed by the directors they also set officers compensation

Summary: Shareholdes hire/fire directors and Directos hire/fire Officers- Generally shareholders dont hire/fire officers Indeminification of Directors and Officers If getting sued by /on behalf of corporation in capacity as officer or Director She incureed costs attorneys fees fines and judgment. No Indeminification when the person is held liable to the corporation when sued. Corporation Must indemnify the person if she is successful in defending on the merits or otherwise won a judgment- corp picks up tab Corp May indemnify when not a case from 1 or 2 above

The person sued must show he acted in good faith and with a reasonable belief that her actions were in the best interest of the corporation. Eligibility is determined by legal counsel or disinterested director or shareholders Court where d or O is being sued can order reimbursement if it is justified in view of all circumstances if held liable will be limited to costs and attorneys fees

The articles can limit the director liability to the corporation for damages but not for intentional misconduct e.i. Usurping corporate opportunities unlawful distributions or improper personal benefit

Exculpatory provisions dont apply to officers too.

Defintions

Issued and outstanding: shares sold Authorized shares described in the corporations articles of incorporation Authorized but unissued:shares reaquired by corp through purchase or redemption Treasury: Formerly required shares were authorized shares