Board of Directors
Board of Directors
- Your Board of Directors is responsible for the management of your
corporation. Its role in managing your corporation includes appointing,
supervising, and removing officers; approving major contracts and undertakings;
declaring dividend; determining the capital structure and financial policy of
the corporation; establishing all business policies; fixing compensation of
officers and directors; and initiating actions that require shareholder approval
such an amendment of the Articles of Incorporation, a consolidation, or a
merger. With respect to its financial obligations, more specifically it will
establish the stated value of the capital stock; determine the value of the
consideration that the corporation will receive in payment of the shares it
issues; and secure credit, borrow money and issue corporate bonds, promissory
notes, and other obligations. In performing their management duties, directors
may rely on the opinions of accountants, legal counsel and other similar
professionals. Your officers and employees are responsible for carrying out the
ordinary business practices of your corporation, albeit under the directives and
supervision of your Board of
Directors.
Depending on your state of incorporation, the number of directors on your Board will be specified either in your Articles of Incorporation or your By-laws. However, be aware that those state laws specifying minimum numbers of directors are controlling over your Articles and By-laws. For example, California law requires that if there is only one shareholder then you may choose only one director, if there are two shareholders then you may choose no fewer than two directors, if there are three or more shareholders then you may choose no fewer than three directors.
The members of your initial board will either be named in your Articles of Incorporation or elected by your incorporators. Thereafter, your directors will be elected by your shareholders, usually at their annual meeting. A person need not be a shareholder, officer, or any other employee of your corporation, or even a resident of your state of incorporation in order to serve on your Board of Directors. Such a director is called an Outside Director or Independent Director. Generally, if a director dies, resigns or becomes incapacitated during his or her term of office, a replacement director may be chosen by the remaining directors. In all other instances, such as expiration of a director's term in office or removal from office, it is the shareholders who elect a new director.
In fulfilling its management role, the Board of Directors must act collectively as one body. By comparison, any one corporate officer may make a decision within that officer's authority individually and without the concurrence of the other officers. This collective action of the Board is done at a formal meeting of the Board of Directors. There are two types of Board meetings: the annual meeting specified in the by-laws and the special meetings held as matters arise throughout the year.
To hold a valid Board meeting there must first be a quorum of directors present at the meeting. As general rule a quorum of directors means that a majority of all of your directors is present at the meeting. After determination that there is a quorum of directors present, a majority of the directors present may decide issues before them at the Board meeting, even if not every director is present at the meeting. For example, suppose you have a total of five directors on your Board. At your Board meeting, the three directors present constitute a quorum. During that meeting a majority of two directors can approve or reject matters on the agenda for that Board meeting.
Your Board of Directors must follow certain corporate formalities. For example, each director must receive proper written notice of each upcoming Board meeting. A written waiver of notice signed by each director who did not receive proper written notice of a particular Board meeting is sufficient to meet this corporate formality. Another corporate formality is the writing and maintaining (in the corporate minute books) of the corporate minutes pertaining to each Board meeting and each unanimous written consent.
The laws of most states allow the Board of Directors to conduct business by unanimous written consent in lieu of a meeting provided that the consent has been signed by every director. The Secretary then inserts the unanimous written consent in the corporate minute book.
Directors, like corporate officers, from time to time, seek advice of legal counsel. The content of their discussions with counsel is privileged from Discovery in a lawsuit under a legal doctrine known as Attorney-Client Privilege. If your legal counsel is present at your Board of Directors meeting, then your Secretary should say so in the corporate minutes. The Attorney-Client Privilege applies to discussions between directors and counsel at your Board of Directors meeting. Writing the substance of those discussions in your corporate minutes may result in a waiver of the Attorney-Client Privilege so it is best to merely note with respect to the applicable resolution in the minutes that "Members of the board of directors and legal counsel engaged in a privileged discussion on this matter." Be forewarned that while an attorney's work product may be privileged from discovery, your notes of a privileged conversation with your counsel do not constitute attorney work product.
Your directors and officers each have a duty to act in the best interests of your corporation, ahead of their own personal interests. This means that a Board member should not vote on matters in which he or she has a conflict of interest such as corporate resolution directing the corporation to lease space in an office building owned by a director. The Board must perform its management functions in a prudent and non-negligent manner. See Duty of Diligence and Due Care, Duty of Loyalty, and Usurping a Corporate Opportunity.
Disclaimer: The foregoing is intended to provide general information and may not be suitable in specific instances. The glossary information is not intended to be exhaustive, but rather to illustrate typical considerations. The material is provided with the understanding that it is not legal, accounting, tax or any other professional advice.
Copyright © 2003-2010 LawVantage.com, LLC. All rights reserved.
Important LawVantage.com, LLC and its website, CorporateBoardMinutes.com, do not render any legal, accounting or other consulting advice.
For legal advice, you should always consult with a qualified attorney-at-law.
Website development by
Vine Design.
Depending on your state of incorporation, the number of directors on your Board will be specified either in your Articles of Incorporation or your By-laws. However, be aware that those state laws specifying minimum numbers of directors are controlling over your Articles and By-laws. For example, California law requires that if there is only one shareholder then you may choose only one director, if there are two shareholders then you may choose no fewer than two directors, if there are three or more shareholders then you may choose no fewer than three directors.
The members of your initial board will either be named in your Articles of Incorporation or elected by your incorporators. Thereafter, your directors will be elected by your shareholders, usually at their annual meeting. A person need not be a shareholder, officer, or any other employee of your corporation, or even a resident of your state of incorporation in order to serve on your Board of Directors. Such a director is called an Outside Director or Independent Director. Generally, if a director dies, resigns or becomes incapacitated during his or her term of office, a replacement director may be chosen by the remaining directors. In all other instances, such as expiration of a director's term in office or removal from office, it is the shareholders who elect a new director.
In fulfilling its management role, the Board of Directors must act collectively as one body. By comparison, any one corporate officer may make a decision within that officer's authority individually and without the concurrence of the other officers. This collective action of the Board is done at a formal meeting of the Board of Directors. There are two types of Board meetings: the annual meeting specified in the by-laws and the special meetings held as matters arise throughout the year.
To hold a valid Board meeting there must first be a quorum of directors present at the meeting. As general rule a quorum of directors means that a majority of all of your directors is present at the meeting. After determination that there is a quorum of directors present, a majority of the directors present may decide issues before them at the Board meeting, even if not every director is present at the meeting. For example, suppose you have a total of five directors on your Board. At your Board meeting, the three directors present constitute a quorum. During that meeting a majority of two directors can approve or reject matters on the agenda for that Board meeting.
Your Board of Directors must follow certain corporate formalities. For example, each director must receive proper written notice of each upcoming Board meeting. A written waiver of notice signed by each director who did not receive proper written notice of a particular Board meeting is sufficient to meet this corporate formality. Another corporate formality is the writing and maintaining (in the corporate minute books) of the corporate minutes pertaining to each Board meeting and each unanimous written consent.
The laws of most states allow the Board of Directors to conduct business by unanimous written consent in lieu of a meeting provided that the consent has been signed by every director. The Secretary then inserts the unanimous written consent in the corporate minute book.
Directors, like corporate officers, from time to time, seek advice of legal counsel. The content of their discussions with counsel is privileged from Discovery in a lawsuit under a legal doctrine known as Attorney-Client Privilege. If your legal counsel is present at your Board of Directors meeting, then your Secretary should say so in the corporate minutes. The Attorney-Client Privilege applies to discussions between directors and counsel at your Board of Directors meeting. Writing the substance of those discussions in your corporate minutes may result in a waiver of the Attorney-Client Privilege so it is best to merely note with respect to the applicable resolution in the minutes that "Members of the board of directors and legal counsel engaged in a privileged discussion on this matter." Be forewarned that while an attorney's work product may be privileged from discovery, your notes of a privileged conversation with your counsel do not constitute attorney work product.
Your directors and officers each have a duty to act in the best interests of your corporation, ahead of their own personal interests. This means that a Board member should not vote on matters in which he or she has a conflict of interest such as corporate resolution directing the corporation to lease space in an office building owned by a director. The Board must perform its management functions in a prudent and non-negligent manner. See Duty of Diligence and Due Care, Duty of Loyalty, and Usurping a Corporate Opportunity.
Disclaimer: The foregoing is intended to provide general information and may not be suitable in specific instances. The glossary information is not intended to be exhaustive, but rather to illustrate typical considerations. The material is provided with the understanding that it is not legal, accounting, tax or any other professional advice.
Copyright © 2003-2010 LawVantage.com, LLC. All rights reserved.
Important LawVantage.com, LLC and its website, CorporateBoardMinutes.com, do not render any legal, accounting or other consulting advice.
For legal advice, you should always consult with a qualified attorney-at-law.
Website development by
Vine Design.