Corporations - Directors, Officers, and Shareholders

Flashcards covering the roles, duties, liabilities of directors, officers, and shareholders in a corporation.

What is the role of the Board of Directors (BoD)?

The ultimate authority in every corporation with responsibility for making decisions necessary to managing the corporation.

How long is a director's term of office?

Usually one year, from annual meeting to annual meeting, with a common practice of electing one third of the board members each year for a three-year term.

Under what circumstances can a director be removed?

For cause, either as specified in the articles or bylaws, or by shareholder action.

What are possible causes of vacancies on the Board of Directors?

Death, resignation, or when a new position is created through amendment of the articles or bylaws.

How does the Board of Directors conduct business?

Formal meetings with recorded minutes, potentially held remotely via phone, Skype, or web conferencing.

What is a quorum in the context of Board of Directors' meetings?

Minimum number of directors that must be present at a meeting for business to be transacted, usually a majority of directors.

What are the rights of directors?

Right to be notified of BoD meetings, access to corporate books and records, and indemnification for legal costs related to corporation-related suits.

What is the role of Corporate Officers and Executives?

Hired by the BoD and act as agents of the corporation, carrying out duties articulated in the bylaws.

Why are directors and officers deemed to be fiduciaries of the corporation?

A relationship with the corporation and its shareholders that is one of trust and confidence.

What fiduciary duties do directors and officers owe to the corporation and its shareholders?

Duty of care and duty of loyalty.

What is expected in the Duty of Care for directors and officers?

Act in good faith, exercise the care that an ordinarily prudent person would exercise in similar circumstances, and act in what he or she considers to be the best interest of the corporation.

What actions should directors and officers avoid to uphold the Duty of Loyalty?

Avoiding competing with the corporation, usurping a corporate opportunity, engaging in insider trading, etc.

What must a director do if a corporation enters into a transaction in which the director has a personal interest?

Disclose that interest fully and abstain from voting on the proposed transaction.

What does the business judgment rule protect directors and officers from?

Honest mistakes of judgment and poor business decisions do not automatically make officers and directors liable for damages.

What are the powers of shareholders?

Approve fundamental changes, elect directors, and amend articles of incorporation and bylaws.

How often must shareholders' meetings occur?

At least once annually, with reasonable notice of the date and time of the meeting.

What is a proxy in the context of shareholders' meetings?

Written authorization given by a shareholder to a third party to vote their shares at a meeting.

What constitutes a quorum at a shareholders' meeting?

Generally, this condition is met when shareholders holding more than 50% of the outstanding shares are in attendance

What information is included on the voting lists?

Contains the name and address of each shareholder as shown in the corporation records on a given cutoff date, called the record date.

What is cumulative voting?

Method of voting designed to allow minority shareholders to have representation on the BoD

What are preemptive rights?

Grants a shareholder the right to purchase a prorated share of a new issue of stock

What are dividends?

A distribution of corporate profits or income ordered by the directors and paid to the shareholders.

What are inspection rights of shareholders?

Right to inspect and copy corporate books and records for a proper purpose, provided the request is made in advance.

What is the Shareholder's Derivative Suit?

When the BoD of a corporation fails to sue in the corporate name to redress a wrong suffered by the corporation, shareholders are permitted to do so.

What is the general liability of shareholders?

Shareholders are not personally liable for the debts of the corporation, with some exceptions where the 'corporate veil' is pierced.

What are the duties of majority shareholders?

In some instances, a majority shareholder is regarded as having a fiduciary duty to the corporation and to the minority shareholders