Duties of Officers, Directors and Shareholders
Terms
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- How many Directors are required in a corporation?
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Common law; 3 or more
Modern view; 1 or more
Only natural persons can reside on the Board. Provision of the no. of Board members is included in the Bylaws - How is the Board elected?
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May have varied systems, refernced in the bylaws.
Example; Elect Board members every year, 9 members, 3 each year.. 3 year term for each member.
Staggered elections
Board members may be elected aligned with the classes of stock, each stock class can elect a certain no. of board members.
This distributes shareholder power. - How can a Board member be removed from the Board?
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At common law, a board member could be removed only for cause.
Modern view, shareholders can remove Directors with or without cause, unless AoI stipulate can remove only for cause. - Can a court of law remove a Director of a private corp.?
- A court may remove a Board member only under extraordinary circumstances as in situations of gross fraud and abuse, serious misconduct.
- How are Board decisions made?
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All Board decisions must be made within a meeting, allowing all members opportunity to hear and contribute to discussion.
Exception to a meeting:
1) All board members consent in writing, no meeting is needed. - Can conference calls be considered a board meeting?
- Yes, if everyone on the phone is able to hear the discussion.
- May Directors transfer their proxy vote, if they will not be attending the meeting?
- No, no transfer of votes allowed for Directors. The rule is Directors must exercise their own independent judgement. No Voting agreements or transfer of proxy vote rights are allowed.
- What is a quorum?
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A quorum represents the minimum number of Directors required to hold a meeting. It is typically, a majority of members unless there is a different provision in the bylaws.
To pass a yes vote, a majority of those in attendance must vote yes.
9 Directors, 5 must attend the meeting and 3 of 5 must vote yes to pass a resolution. - What is the Board's Duty of Care to the Corporation?
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A Duty of care is a fiduciary duty imposed on individual board members by operation of law.
The duty requires the Board member to act as a prudent person would in handling their own affairs. They must act in good faith in the best interest of the corporation, as a prudent person in similar circumstances. - Nonfeasance
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A director fails to act to protect the corporation where there is a duty to act.
Ex. Board member never attends Board meetings, or votes. - What is the Approach in analysing the Board's Duty of Care?
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1) Set out legal standard and General rule.
2) Apply standard to the facts.
3) Check loss to the corporation as a result of the Director's breach.. If no harm resulted to the corporation, then no liability attaches. If you can argue a loss, then Director is liable.