WORKSHEET 40.1: DIRECTORS AND OFFICERS & THEIR DUTIES AND LIABILITIES

A director or officer may violate the duty of loyalty by directly_______the corporation, by________or stealing a corporate opportunity, by having a________of interest, by engaging in_______trading, by authorizing an action that is_______to minority shareholders or by selling_______the corporation.

competing with; usurping; conflict; insider; detrimental; control over

Inside Directors

Directors who are also officers of the corporation

Outside Directors

Directors who do not hold management positions at the corporation

Quorum

The directors required to make a decision or take official action

[T/F] Corporate officers are hired by the directors.

True

[T/F] Directors and officers may be liable for the actions of corporate employees under their supervision as well as for their own torts and crimes.

True

The business judgment rule states that directors and officers:

are immune from liability for bad business judgments so long as they exercised reasonable care

When a corporation enters into a contract or engages in business with another corporation in which one of the board members has a personal interest, that board member must fully_____the conflict and_____voting.

disclose; abstain from

Officers and directors have a special relationship with the corporation and its shareholders and are called:

fiduciaries

The board of directors holds_____meetings with recorded minutes, generally on predetermined dates. They may hold special meetings with______sent to all directors. In most states, directors______have to participate in person. Each director at the meeting has_____vote(s), and directors who miss the meeting have____vote(s).

regular; notice; do not; one; no

Select the two most common committees formed by large boards of publicly traded companies.

audit committee; executive committee

Individual corporate directors_______have the ability, as agents of the corporation, to bind the corporation.

do not

Directors and officers have a duty of care to act______, to exercise the care that a(n)________person would exercise in similar circumstances, and to do what the director or officer believes is in the_______of the corporation.

in good faith; ordinarily prudent; best interest

With respect to officers, most corporations have a_____, one or more_____, a secretary, and a_____.

president; vice presidents; treasurer

[T/F] A corporate director who sits on more than one board is engaging in illegal activity.

False

[T/F] Directors are hired by the shareholders through an interview process.

False

Select the three main rights that directors have in order to properly function.

right to participation; right of inspection; right to indemnification;