What is the role of the Board of Directors or Board of Trustees in a corporation? (Section 22, RCC)

Summary

Attorney Chris Batan Lasko's YouTube channel simplifies legal concepts, focusing on the role of the board of directors in corporations. He explains that directors, elected by stockholders, govern the corporation, making decisions and setting policies. The video discusses the practicality of a smaller board for efficient governance and the limitations of their powers, including the business judgment rule that protects directors from court interference unless there's bad faith. Upcoming videos will cover directors' terms and qualifications.

Takeaways

• 📚 The role of the board of directors or trustees is to govern the corporation as its decision-making body.
• 🏢 Directors are elected by stockholders and are responsible for entering into contracts and setting policies for the corporation.
• 👥 The board operates as a collective body and cannot exercise powers individually.
• 🔑 The board's authority is practical and efficient for managing the corporation due to its smaller size compared to the entire stockholder base.
• ❌ Stockholders cannot override decisions made by the board of directors regarding corporate actions.
• 🔄 If stockholders disagree with the board's direction, they can elect new directors during the next election.
• 🗣️ A quorum, which is half plus one of the board members, must be present for the board to conduct legitimate business.
• 🗳️ Decisions are made by majority vote among the directors present at the meeting.
• 🚫 Corporate officers generally cannot bind the corporation without the board's authority.
• ⛔ Certain powers of the board, such as declaring dividends and supervising corporate affairs, cannot be delegated.
• 📉 The business judgment rule protects the board from court interference as long as their actions are in good faith and within corporate powers.

Q & A

What is the primary role of the board of directors in a corporation?

The primary role of the board of directors is to act as the governing body of the corporation, exercising the powers of the corporation, governing its affairs, entering into contracts, and creating policies.

Why are directors referred to as trustees in some cases?

Directors are referred to as trustees in non-stock corporations, while they are called directors in stock corporations.

Why does the corporation code give governing power to the board of directors instead of the stockholders?

The corporation code gives governing power to the board of directors for practicality, convenience, and efficiency, as it is impractical and inefficient for every corporate action to be decided by potentially large numbers of stockholders.

Can stockholders override decisions made by the board of directors?

No, stockholders cannot override decisions made by the board of directors because the power to govern and enter into contracts on behalf of the corporation is vested in the board.

What can stockholders do if they disagree with the direction the board of directors is taking?

If stockholders disagree with the direction the board is taking, they can elect to replace the directors during the next election.

How do the powers of the board of directors get exercised?

The powers of the board of directors are exercised collectively as a body, not individually, typically during meetings where corporate actions are decided upon.

What is a quorum and why is it necessary for the board of directors?

A quorum is the required number of board members that must be present at a meeting to act on corporate matters. It is necessary to ensure that decisions made are legitimate and can be acted upon.

Can corporate officers bind the corporation without the authority of the board of directors?

As a general rule, corporate officers cannot bind the corporation without the authority of the board of directors, as only the board has the power to bind the corporation unless such power is delegated.

What powers cannot be delegated by the board of directors?

The board of directors cannot delegate discretionary powers, the entire supervision and control of corporate affairs, powers given to them by stockholders' resolutions, or powers restricted in the by-laws.

What is the business judgment rule and how does it relate to the board of directors?

The business judgment rule is a principle that courts will not interfere with the board of directors' governance as long as their actions are within the corporation's powers, are intraverse acts, and are made without bad faith or malicious intent.

What are some limitations on the board of directors' powers according to the script?

According to the script, the board of directors cannot delegate powers that are discretionary, essential to their role, given by stockholders' resolutions, or restricted by the by-laws.

Outlines

00:00

📚 Introduction to the Role of the Board of Directors in a Corporation

Attorney Chris Batan Lasko introduces his virtual classroom on YouTube, where he simplifies legal concepts. This video focuses on the board of directors in a corporation, explaining their role as the governing body. The board, consisting of directors or trustees, exercises the corporation's powers and makes decisions on its behalf. Directors are elected by stockholders, and the video discusses the practical reasons for giving governing power to a smaller group, such as efficiency and convenience. It also touches on the limitations of stockholder power to overrule the board's decisions and the potential for stockholders to influence the board by electing new directors.

05:03

🔍 How the Board of Directors Exercises Corporate Powers

The video explains how the board of directors exercises the corporation's powers collectively, not individually. Corporate actions, such as entering into contracts or setting policies, are decided upon during board meetings. A quorum, which is half plus one of the board members, must be present for the board to act on corporate matters. Decisions are made by majority vote. The video also clarifies that corporate officers cannot bind the corporation without the board's authority, and there are certain non-delegable powers that the board must retain, such as declaring dividends and overseeing corporate affairs.

10:05

🏛️ The Business Judgment Rule and Its Implications for Directors

Attorney Lasko discusses the business judgment rule, which states that courts will not interfere with the board's governance as long as their actions are within the corporation's powers and there is no bad faith. This rule allows directors to make decisions for the corporation without fear of court intervention, provided their decisions are in good faith and within their granted powers. The video concludes with a teaser for the next video, which will cover the term and qualifications of directors and trustees.

Keywords

💡Board of Directors

The Board of Directors is the governing body of a corporation in charge of making key decisions like entering contracts and creating policies. In the video, it is explained that the stockholders elect directors to represent them, and the board acts as the collective decision-making body.

💡Trustees

Trustees serve as the governing body in non-stock corporations, similar to directors in stock corporations. They exercise the same powers to guide the corporation, such as creating policies and entering contracts, as discussed in the video.

💡Stockholders

Stockholders are the owners of a corporation who elect the Board of Directors. While they hold ownership, they delegate governance to the board for practicality and efficiency. The video emphasizes that stockholders have the right to replace directors if dissatisfied with their leadership.

💡Quorum

A quorum is the minimum number of board members needed to hold a valid meeting and make decisions. The video describes that a quorum is typically half plus one of the total board members, which is necessary to take corporate actions.

💡Corporate Action

Corporate actions refer to decisions made by the board that affect the corporation's operations, such as entering contracts or adopting policies. The video explains that these actions are taken collectively by the board during meetings with a quorum present.

💡Business Judgment Rule

The Business Judgment Rule protects directors from liability for decisions made in good faith, even if those decisions result in losses. The video notes that courts won’t interfere with board decisions unless there is evidence of bad faith or malicious intent.

💡Delegation of Authority

Delegation of authority refers to the board's ability to assign certain powers, like entering contracts, to corporate officers. However, the video clarifies that some powers, such as declaring dividends or controlling corporate affairs, cannot be delegated.

💡Corporate Officers

Corporate officers include roles like president, secretary, and treasurer, who manage day-to-day operations. The video explains that these officers generally cannot bind the corporation without authorization from the board of directors.

💡Stock Corporation

A stock corporation is a company that issues shares to stockholders, who in turn elect the Board of Directors. The video differentiates between stock corporations, which have directors, and non-stock corporations, which have trustees.

💡Non-stock Corporation

Non-stock corporations do not issue shares but are instead governed by trustees elected by members. The video explains that trustees manage the corporation's affairs similarly to directors in stock corporations.

Highlights

Introduction to the role of the board of directors in a corporation

Difference between directors in a stock corporation and trustees in a non-stock corporation

The board of directors as the governing body of a corporation

Practicality, convenience, and efficiency as reasons for the board's governing power

Stockholders elect the board of directors but do not govern directly

Stockholders can replace directors through elections if dissatisfied

Board of directors exercises powers collectively, not individually

Quorum requirement for the board of directors to act on corporate matters

Majority vote rule within the board of directors

Corporate officers generally cannot bind the corporation without board authority

Board of directors cannot delegate certain powers to corporate officers

Discretionary powers of the board, such as declaring dividends, cannot be delegated

The board cannot delegate the entire supervision and control of corporate affairs

Powers given by stockholder resolutions cannot be delegated to corporate officers

Powers restricted in the by-laws cannot be delegated

Introduction to the business judgment rule and its implications

Courts will not interfere with board decisions unless there is bad faith or malicious intent

Directors are given liberty to decide for the corporation within their powers

Upcoming discussion on the term and qualifications of directors or trustees

Transcripts

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hi i am attorney chris batan lasko

this is my virtual classroom welcome to

my youtube channel

in this channel i shall aim to simplify

the law i will discuss concepts and

principles of law in under 10 minutes

hi

so in this channel we have had a series

of videos talking about

a corporation

this video is still part of that series

we will talk about the board of

directors or the board of trustees in a

corporation so what is the role of your

board of directors what is the role of

your board of trustees

in a corporation

again remember

we call them the directors if it is a

stock corporation and we call them your

trustees if it is a non-stop corporation

so

what role do they play

in a corporation

the board of directors or trustees

it is considered as the governing body

of the corporation

remember that a corporation is an

artificial being in other words it

cannot act on its own

and so you have

the

board of directors

or your board of trustees who will

exercise the powers of the corporation

who will govern the affairs of the

corporation

your board of directors or trustees then

would be the one who would enter into

contracts who would give a direction to

the corporation who would create

policies for the corporation

the directors in a corporation are being

elected

into the

board

by your stockholders

so why do we give

the power to govern to your board of

directors

when in fact your stockholders or your

members are the ones who are actually

putting them

into their position as director or

trustee in other words the stockholders

or the members are actually the masters

of the corporation and yet

your corporation code gives

the governing power to your board of

directors or trustees

what is the reason behind that

the reason behind that

is actually for practicality and for

convenience and for efficiency

why do we say it's practical convenient

and efficient if we

give the governing power to the board of

directors

because

it is a smaller group of people compared

to your stockholders

so if a corporation has 200 stockholders

it would be very impractical it would be

very costly and it would be very

inefficient if every corporate action

will have to be decided

by these 200 stockholders

compared to putting that power to decide

on a corporate action to a smaller group

of people whom we call the

board of directors

now supposing your board of directors or

trustees have already decided on a

certain corporate action perhaps they

have decided to enter into a particular

contract

and they have

decided on it and they have voted in it

and majority of the directors of the

board have

agreed to it

can the stockholders make a resolution

not recognizing such contract to us

already approved by

the board of directors

the answer is no

because again

the power to govern the power to enter

into contracts in behalf of the

corporation

is

vested

in your board of directors and not your

stockholders

so what then can the stockholders do

if they they

are no longer agreeable

to the direction that the directors are

taking the corporation

remember that they are the ones who will

be choosing their directors

so come next

election if they are no longer happy

with what the directors are are doing

with how the directors are governing the

affairs of the corporation then they can

be replaced in your next election

now we said earlier

that the powers of the corporation are

exercised by your board of directors

we said they have the power to enter

into contracts

they have the power to create policies

they have the power to gear

the direction or guide the direction of

the corporation

how do they do that how do they exercise

such powers

they exercise those powers collectively

they exercise those powers as a body

they cannot exercise those powers

individually so how is that done

of course

they will have to be in a meeting

and they will decide on corporate action

they will decide on whether they will

enter into a particular contract they

will decide on what policies that will

be adopted by the corporation again they

do it as a body

they do it collectively

so what is the process how is that done

as we said they will be in a meeting

for them to be able to carry on

legitimate business or to carry on a

particular corporate act

they have to be in a quorum

in such meeting

what is a quorum

a quorum is that required number

to be present in the meeting so that

they can act on a particular corporate

act

the quorum that is required is

half plus one

so let's say for example there are

ten directors in your board or ten

trustees in your board

the quorum is one half plus one what is

one half plus one of ten

you have six

one half is five plus one that is six

so you need six directors

who will be present in the meeting to

have a quorum once they have the quorum

then they can now act on legitimate

business

so the quorum in our example

they have six directors in meaning so

supposing they are deciding on

which supplier to choose is it supplier

a or is it supplier b

from the sixth or present in a meeting

they will now have to decide

now how do you determine

which

supplier will they choose of course they

will vote on it

and from the six who are present in the

forum

the majority wins that's a very simple

concept that is applicable also

in

meetings of the board of directors so

from the sixth or present in the quorum

if four are in favor of getting supplier

a then

that will be

carried or

asked

now how about corporate officers like

your president

your secretary or treasurer or

any other corporate officer that is

created by the

bylaws in your corporation

can they bind the corporation

as a general rule

they cannot

without the

authority of the board of directors

in other words

it is as a general rule

only your board of directors who can

bind the corporation

only when they have delegated

such power or authority to your

corporate officers that the latter can

bind the

corporation

now

can the board of directors or trustees

delegate all their powers to corporate

officers or to certain persons no not

all

yes they may delegate

the power to enter into contracts they

can delegate that to certain corporate

officers but there are certain powers of

the board that cannot be delegated

what are these powers that cannot be

delegated

number one your discretionary powers

like the power to declare

dividends that cannot be

delegated second your board of directors

cannot also delegate the entire

supervision and control of corporate

affairs because then they would be

rendered useless if they do so

number three they cannot delegate powers

that were especially given to them by

the stockholders by a resolution of the

stockholders precisely the stockholders

gave them

that

particular power or authority so they

cannot delegate that to another

corporate officer or to another person

and lastly they cannot delegate powers

as those

um restricted in the by-laws of course

we will talk about bylaws in another

video so there is another concept

that we have to also learn when we talk

about the governing power of the board

of directors

and we call it the business judgment

rule

what is the business judgment rule

the business judgment rule will tell you

that the courts will not interfere

with the manner by which your board of

directors

would govern the corporation

so long as

the actions of the board of directors or

trustees are within the powers of the

corporation or what we call intraverse

acts

then the courts will not

interfere

in the

matters that have been have been acted

upon by the corporation

even if certain decisions of the board

of directors have led to

a loss or losses of the corporations so

long as there is no bad faith perhaps

there was bad judgment on the part of

the directors

your courts will not interfere again so

long as there is no bad faith there is

no malicious intent to bring damage to

the corporation on the part of your

directors because you have to remember

that the directors

who are elected are not

are not infallible they could make

mistakes

and so they are given that liberty to

decide for the corporation again

so long as

they have

they have acted on powers that are

within the powers of the corporation and

there is no bad faith or malicious

intent on their part of us damage to the

corporation the courts will not

interfere

i will put here

your uh um some cases that you can read

to understand more the business judgment

rule

that is it for this video

in my next video i will be talking about

the term of your directors or trustees

what are the qualifications of becoming

a director or a trustee and many more so

i hope you have learned something from

this video again and i will see you in

the next

so if you find this video helpful please

click like subscribe and that

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notified of new video uploads thank you

for watching see you next time in mbl

classroom

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