1. CHAPTER 9
THE CORPORATE ORGANIZATION
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2. Authority and Duties of Directors
THE BOARD OF DIRECTORS
The corporation acts through its board of directors.
The board of directors may range from one to several directors.
Directors may also be shareholders, officers, and/or employees of the corporation.
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3. Authority and Duties of Directors
DIRECTORS’ AUTHORITY
DIRECTORS’ DUTIES
Directors have the authority to act for the corporation.
Directors may delegate authority to officers of the corporation, but they must continue to exercise general supervision over their activities.
The board of directors may also delegate authority to committees comprising directors.
Directors owe fiduciary duties to the corporation and its shareholders:
The duty of care
The duty of loyalty
The duty of good faith
Directors may rely on reliable information presented to them by officers, legal counsel, and accountants when making decisions on behalf of the corporation.
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4. Personal Liability of Directors
BUSINESS JUDGMENT RULE
Officers and directors are not personally liable for bad outcomes of honest, careful decisions within their corporate powers when those decisions are made:
In good faith;
Where the director or officer is not personally interested in the subject of the decision;
Where the director or officer is informed and reasonably believes the decision to be appropriate; and
Where the director or officer rationally believes the decision is in the best interests of the corporation.
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5. Personal Liability and Compensation of Directors
DIRECTOR COMPENSATION
Breach of fiduciary duty, duty of care, or duty of loyalty
Unauthorized acts
Negligence
Fraud or other illegal acts
Directors may or may not receive compensation for their roles as directors.
Director compensation is usually set by a committee of the board of directors.
Outside directors are customarily compensated for their time and meeting attendance.
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6. Compensation and Indemnification of Directors
MANDATORY INDEMNIFICATION
Expenses incurred for successfully defending themselves in a lawsuit brought because of their position with the corporation.
PROHIBITED INDEMNIFICATION
Expenses incurred for defending themselves in a suit due to their own wrongdoing.
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7. Election and Terms of Directors
The directors are elected by the shareholders.
The term of each director expires at the next annual meeting of the shareholders following their election; terms may be staggered.
Directors may resign with notice to the chairman.
Directors may be removed by vote of the shareholders or by a court of law.
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8. Meetings of Board of Directors and Resolutions
Corporate directors have no individual power to act on behalf of the corporation. They act through the collective action of the board.
Meetings of the board of directors are held to take corporate action pursuant to state statutes and the corporation’s bylaws.
Actions by the board of directors may be taken through resolutions passed by unanimous written consent signed by all directors.
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9. Meetings of Board of Directors and Resolutions
ANNUAL MEETINGS OF THE BOARD OF DIRECTORS
Approve the minutes from the last meeting of the directors
Approve shareholder dividends to be paid
Approve annual reports
Review financial reports of the corporation
Elect corporate officers and set their compensation
Approve officer and director bonuses
Ratify the acts of the officers and directors for the past year
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10. Meetings of Board of Directors and Resolutions
QUORUM AND MINUTES
A quorum is the minimum number of directors who must be present at a meeting to take action on behalf of the corporation.
Minutes of each meeting of the board of directors must be taken, usually by the corporation’s secretary, and filed in the corporation’s corporate minute book.
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11. Corporate Officers TITLES AND DUTIES OF CORPORATE OFFICERS
Set by state statutes, corporate bylaws, or articles of incorporation:
Chief Executive Officer
President
Chairman of the Board
Vice President
Chief Financial Officer
Treasurer
Secretary
Assistant Secretary
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12. Corporate Officers PERSONAL LIABILITY AND TERMS OF OFFICERS
Officers are usually held to the same standards of conduct as directors of the corporation.
Officers not acting in good faith or who breach their fiduciary duty, duty of care, or duty of loyalty may be subject to personal liability for damages caused by them.
Officers are generally elected for one-year terms by a majority of the board of directors at the annual meeting of the board of directors.
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13. CORPORATE COMPLIANCE PROGRAMS
White-Collar Crime
WHITE-COLLAR CRIME
includes various nonviolent crimes such as theft, fraud, insider trading, embezzlement, bribery, racketeering, and other forms of theft that involve the violation of trust.
CORPORATE COMPLIANCE PROGRAMS
are often enacted by corporations taking a proactive stance to prevent white-collar crime and criminal liability.
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14. Shareholders’ Rights and Responsibilities
Preemptive rights
Right to inspect corporate records
Right to be shielded from personal liability for the debts and obligations of the corporation
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Shareholder Meetings
The most important decisions about the future of a corporation are made at shareholder meetings.
Details concerning the dates, times, and places are generally set forth in the corporate bylaws.
Shareholder meetings are typically held at the corporation’s principal office.
Shareholders are entitled to proper notice of meetings.
Informal for smaller corporations
Formal for larger, publicly held corporations
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Shareholder Meetings
PROXIES AND QUORUM
Shareholders who are unable to attend meetings may vote through the use of a proxy.
For an action to be taken at a meeting of the shareholders:
A quorum must be present, and
A sufficient number of shareholders present
must vote in favor of the proposed action.
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17. OTHER ACTS REQUIRING SHAREHOLDER APPROVAL
Shareholder Meetings
OTHER ACTS REQUIRING SHAREHOLDER APPROVAL
Election of directors
Amendment of bylaws
Amendment of articles of incorporation
Issuance of corporate stock
Mergers and acquisitions
Sale of corporate assets outside the normal course of business
Dissolution of the corporation
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18. Restrictions on Transfer of Shares of Corporate Stock
SHAREHOLDER AGREEMENTS RESTRICTING STOCK TRANSFERS
Corporate stock may be transferred freely, without restrictions.
Shareholders may enter into agreements to restrict transfer of stock.
Shareholder agreements may provide for the mandatory purchase of a shareholder’s stock upon the happening of a specified event.
The purchase price pursuant to buy-sell agreements is often established pursuant to a formula set forth in the agreement.
The purchase of a shareholder’s stock on the death of the shareholder is often funded by proceeds of life insurance purchased by the corporation on the life of each shareholder.
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Shareholder Actions
Direct Shareholder Actions—brought on behalf of individual shareholder against the corporation for damages
Representative Actions—brought on behalf of a class or group of shareholders who have a direct claim against the corporation
Derivative Actions—brought on behalf of corporation by one or more shareholders to enforce a right or remedy of the corporation
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The Paralegal’s Role
Research statutes and corporate bylaws to determine requirements for annual meeting
Prepare notices and proxy statements
Arrange for the mailing of notices of the meeting and proxy materials
Make physical arrangements for the meeting
Arrange for press coverage
Coordinate travel arrangements for the directors
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