Business Law 4540 Ch. 39

Front 1

Ultimate legal duty to manage the corporation

Back 1

1. Non-delegable (dividends, hiring officers, supervision of officers, major decisions)

2. Independent judgment required

Front 2

Procedures for board meetings and voting

Back 2

1. Notice of all meetings except annual meeting required

2. Majority of a quorum is required for ordinary decision

Front 3

Quorum

Back 3

typically defined as a majority of the board members who have voting rights

Front 4

Business judgment rule

Back 4

Helps set the standards for directors and officers duties and helps them avoid liability for ordinary business decisions which go bad

Front 5

Business judgment rule: five requirements to avoid liability

Back 5

When a business decision was...
1. Made in good faith
2. Made with authority
3. made with adequate information
4. made with a rational basis
5. made with no conflict of interest

Front 6

Duty of board members - duty of care

Back 6

A director must:
a. attend meetings
b. Be reasonable in selection and supervision of corporate managers
c. Use independent judgment
d. Read and understand financial reports

Front 7

Duty of board members - Loyalty

Back 7

The fiduciary duty to put the interests of the corporation before one's own interests

Front 8

Duty of board members - misc.

Back 8

accounting, notification, and obedience to board decisions

Front 9

List the three violations of the duty of loyalty

Back 9

1. Competing with corporation is forbidden
2. Corporate opportunity doctrine
3. Dealing with conflicts of interest

Front 10

Corporate opportunity doctrine

Back 10

a.) can't usurp an opportunity in the corporation's line of business or expected expansion
1. corporation must have the financial ability for it to be a true corporate opportunity

b.) Duties of directors/ officers as to corporate opportunities
1. full disclosure of the opportunity to the corporation's board
2. Abstain from voting on the issue and have the opportunity disapproved by a majority of disinterested directors

Front 11

Three requirements when dealing with conflicts of interest

Back 11

a. Full disclosure of the opportunity to the firm's board
b. Abstain from voting on the issue and have the situation approved by a majority of voting directors
c. Any contract must be fair and reasonable to the corporation

Front 12

Three rights of directors

Back 12

1. Participation - Requires notice of all meetings except the annual meeting
2. inspection - Absolute right to inspect books and records
3. Indemnification - The repayment by the corporation for liabilities incurred by directors or officers sued as a result of corporate activities

Front 13

When is indemnification for the directors forbidden?

Back 13

When the board member/ officer received a personal benefit from the transaction and where the liability is to the corporation

Front 14

List two rights of officers

Back 14

1. Rights of employees
2. Protected by business judgment rule

Front 15

Duties of officers

Back 15

1. Bound by duty of loyalty like directors
2. Duty of obedience to the board
3. All other duties of agents

Front 16

List the six shareholder rights

Back 16

1. Inspection of books and records
2. Preemptive rights
3. Derivative suits
4. Dividend rights
5. Right to petition for dissolution
6. Voting rights

Front 17

shareholder rights - Inspection of books

Back 17

Inspection of books and records with a proper purpose

Front 18

shareholder rights - Preemptive rights

Back 18

right to purchase newly issued shares in the same proportion as current ownership

Front 19

shareholder rights - Derivative suits

Back 19

right of a shareholder to bring a lawsuit in the corporate name when management refuses or is unlikely to act
a. any money goes to corporation

Front 20

shareholder rights - Dividend rights

Back 20

only if declared by the board of directors
a. board has almost absolute discretion on dividend decision

Front 21

shareholder rights: Right to petition for dissolution

Back 21

a. Reasons: deadlock, fraud or illegality, or waste of assets

Front 22

Shareholder rights: Voting rights

Back 22

Allows shareholders to participate in management of the company in a limited, but sometimes controlling way

Front 23

Two typical shareholder voting rights

Back 23

1. Approval of fundamental changes
a. Super majority usually required

2. Election and removal of directors

Front 24

straight voting for directors

Back 24

Each director elected seperatly, each common share gets one vote

Front 25

Cumulative voting for directors

Back 25

All directors elected at once, each share gets 1 vote X the number of directors being elected

Front 26

Notice for shareholder meetings

Back 26

Reasonable notice of all meetings required - meetings limited to announced purposes

Front 27

Valid vote at a shareholder meeting

Back 27

A majority of a quorum ordinarily required for a valid ordinary vote

Front 28

Three methods of delegation of shareholder voting rights

Back 28

1.Proxies
2. Shareholder agreements
3. Voting trusts

Front 29

Proxy solicitation regulation

Back 29

1. Must list items for vote and give opportunity for shareholder to specify the vote on the issue

2. Must specify the interest of the solicitor in the matter voted on

3. Good for 11 months

Front 30

Shareholder agreements

Back 30

used to consolidate power

Front 31

Voting trusts

Back 31

Legal title placed in a trustee, who votes according to trust instructions

Front 32

Four purposes for delegation

Back 32

1. Obtain a quorum
2. Attempt a corporate takeover
3. Consolidation of power by certain shareholders
4. Estate planning

Front 33

Four ways shareholders can be liable for non-corporate debts

Back 33

1. Stock subscriptions
2. Water stock
3. Knowingly receiving illegal dividends
4. Majority shareholders breach of fiduciary duty