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.