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Corporations • Directors and Officers
CORP#025
Legal Definition
There must be a valid meeting for all board of directors' actions, unless all directors consent in writing to act without a meeting. There must be valid notice of meetings (which can be set in the bylaws) and neither proxies nor voting agreements are allowed, although conference calls are now generally valid.
Unless a different percentage is required by the bylaws, a quorum is needed to take action at a meeting. Where a quorum is present, only a majority vote of those present is required to pass a resolution.
Where there are interested directors, a quorum of the disinterested directors is necessary to take action, and a majority vote of those disinterested directors present is required. Each director is presumed to have concurred in the board of director's action unless her dissent or abstention is recorded in writing.
Unless a different percentage is required by the bylaws, a quorum is needed to take action at a meeting. Where a quorum is present, only a majority vote of those present is required to pass a resolution.
Where there are interested directors, a quorum of the disinterested directors is necessary to take action, and a majority vote of those disinterested directors present is required. Each director is presumed to have concurred in the board of director's action unless her dissent or abstention is recorded in writing.
Plain English Explanation
There's a lot going on here, so let's break it down.
First, directors govern the operations of a corporation, and they do so by having official meetings (unless they all agree to govern some other way) where they propose actions and then vote on whether or not they want to take those actions. Since these meetings are so vital, it is important that directors are given notice of where and when the meetings are so they can show up, because they actually have to show up. You may learn in other cards that for shareholder meetings there are things like "proxies" and "voting agreements" that allow shareholders to enable others to vote on their behalf. These things aren't available to board meetings, which require the actual directors to be present in order to vote.
Second, once the directors show up to vote, the next issue is to figure out whether enough directors showed up in order for the meeting to be valid. In other words, if a board has 10 directors but only 2 directors show up to the meeting, it wouldn't be fair to let those 2 directors vote in new actions. Thus, in general, a quorum must be present, which means a majority of the board (half plus 1). So if there are 10 directors, then a board meeting must have at least 6 directors show up.
Third, once you figure out if the meeting is valid because enough directors showed up, the next issue is to figure out how many votes are necessary in order for a proposed action to pass. In general, an issue only needs a majority of the directors who showed up to support it in order to pass. In other words, if a board has 10 directors, but only 6 show up, there are enough directors to have a valid meeting, and you'll need 4 votes in order to pass something. The only exception to this rule is if the issue you're voting on involves a conflict of interest. For example, if 1 of the directors would benefit from a proposed action, then their vote basically doesn't count and you need a majority of votes from directors who don't have a conflict of interest in order to pass (meaning, they are "disinterested").
First, directors govern the operations of a corporation, and they do so by having official meetings (unless they all agree to govern some other way) where they propose actions and then vote on whether or not they want to take those actions. Since these meetings are so vital, it is important that directors are given notice of where and when the meetings are so they can show up, because they actually have to show up. You may learn in other cards that for shareholder meetings there are things like "proxies" and "voting agreements" that allow shareholders to enable others to vote on their behalf. These things aren't available to board meetings, which require the actual directors to be present in order to vote.
Second, once the directors show up to vote, the next issue is to figure out whether enough directors showed up in order for the meeting to be valid. In other words, if a board has 10 directors but only 2 directors show up to the meeting, it wouldn't be fair to let those 2 directors vote in new actions. Thus, in general, a quorum must be present, which means a majority of the board (half plus 1). So if there are 10 directors, then a board meeting must have at least 6 directors show up.
Third, once you figure out if the meeting is valid because enough directors showed up, the next issue is to figure out how many votes are necessary in order for a proposed action to pass. In general, an issue only needs a majority of the directors who showed up to support it in order to pass. In other words, if a board has 10 directors, but only 6 show up, there are enough directors to have a valid meeting, and you'll need 4 votes in order to pass something. The only exception to this rule is if the issue you're voting on involves a conflict of interest. For example, if 1 of the directors would benefit from a proposed action, then their vote basically doesn't count and you need a majority of votes from directors who don't have a conflict of interest in order to pass (meaning, they are "disinterested").
Visual Aids
Related Concepts
Can a corporation indemnify an officer or director who is held liable to their own corporation?
Can a corporation indemnify an officer or director who successfully defends themselves against a lawsuit from another party?
How can a director defend against a claim that they breached their duty of loyalty?
What are some common examples of permissive indemnification?
What are the statutory requirements of directors?
What duties do directors have to the corporation and shareholders?
What duties do officers have to the corporation and shareholders?
What is the business judgment rule?
What is the duty of care?
What is the duty of loyalty?
What is the duty to disclose?
What is the duty to manage?
When do officers and directors often seek indemnification?
Who decides whether a corporation will indemnify a director or officer?
