This is such a great summary of the duties of the board of directors from three attorneys at Sidley Austin LLP – Claire H. Holland, Holly J.Gregory and Rebecca Grapsas:
Responsibilities of the board (supervisory)
Board’s legal responsibilities
What are the board’s primary legal responsibilities?
The primary legal responsibility of the board is to direct the business and affairs of the corporation (see DGCL, section 141). While the functions of a board are not specified by statute, it is generally understood, as noted in the ALI’s Principles of Corporate Governance and other codes of best practice, that board functions typically include:
- selecting, evaluating, fixing the compensation of and, where appropriate, replacing the CEO and other members of senior management;
- developing, approving and implementing succession plans for the CEO and senior executives;
- overseeing management to ensure that the corporation’s business is being run properly;
- reviewing and, where appropriate, approving the corporation’s financial objectives and major corporate plans, strategies and actions;
- understanding the corporation’s risk profile and reviewing and overseeing the corporation’s management of risks;
- reviewing and approving major changes in the auditing and accounting principles and practices to be used in preparing the corporation’s financial statements;
- establishing and monitoring effective systems for receiving and reporting information about the corporation’s compliance with its legal and ethical obligations, and articulating expectations and standards related to corporate culture and the ‘tone at the top’;
- understanding the corporation’s financial statements and monitoring the adequacy of its financial and other internal controls, as well as its disclosure controls and procedures;
- evaluating and approving major transactions such as mergers, acquisitions, significant expenditures and the disposition of major assets;
- providing advice and counsel to senior management;
- reviewing the process for providing adequate and timely financial and operational information to management, directors and shareholders;
- establishing the composition of the board and its committees, board succession planning and determining governance practices;
- retaining independent advisers to assist the board and committees;
- assessing the effectiveness of the board, its committees or individual directors; and
- performing such other functions as are necessary.
I received an email from a student re insider trading, specifically re what is a tippee. Take a look at my post a couple of years ago on the Supreme Court case of Salman v. US.
The Supreme Court clarified that “a tippee’s liability for trading on inside information hinges on whether the tipper breached a fiduciary duty by disclosing the information. A tipper breaches such a fiduciary duty, we held, when the tipper discloses the inside information for a personal benefit.”
The Supreme Court then said that a “close personal relationship” is enough as far a receiving a personal benefit.
Keep in mind that many cases require “scienter” i.e., bad intent, intent to avoid a law. Keep in mind also that the information must be “material non-public information.”
The student also asked whether the same transaction could also violate general securities laws, i.e., a sale of a security that is not registered and not otherwise exempt. Answer: Of course and that must be considered.
I will be at the school by 5:30 pm today – Oct 22. If any students would like to review their exam answer with me, I will be happy to do that. First come, first served.
Hello Professor, I had a quick question regarding agency law, or more specifically the ratification portion.
Principal will be liable to a third party for an unauthorized contract entered on its behalf, if the principal accepts benefits of the contract. The principal must have knowledge of the contract, the terms and nevertheless accept the benefits.
Does this mean that the principal, after giving either actual (implied or express) or apparent authority, and having knowledge of the contract its terms and its acceptance be ratified or must it be that he must have knowledge of the contract and terms and be required to accept the benefits?
Response: Continue reading
This is a brief (case summary) I wrote in 2013. Bankruptcy case.
Utnehmer v. Crull (In re Utnehmer), 499 B.R. 705 (9th Cir. B.A.P. 2013)
Issue: Was a partnership actually formed here such that the debtor owed fiduciary duties to the creditor which may be non-dischargeable under Section 523(a)(4)?
Judge Alan Jaroslovsky, Northern District California
Pappas, Dunn, Jury
Opinion by Pappas
The debtors decided, in 2005, to build a large “spec home” in Venice Ca which would be sold then for a profit. They borrowed $100,000 from Crull giving Crull a promissory note which was due on sale of the property but no longer than 12 months. “The Parties agreed that $50,000 of the initial $100,000 loan was intended to be super[s]eded by execution of a formal operating agreement which would recharacterize this $50,000 of the lenders’ interest as an investors’ equity interest in a limited liability company to be formed, with a 10% annual preferred return, and 35% participation in profits on a prorated basis. The documents for formation of the limited liability company, and the operating agreement, were supposedly being drafted.” The lender received interest payments for about two years. The property was finally finished and sold but the loan was not repaid since there were insufficient funds available. The debtors filed chapter 7 and the lenders filed a non-dischargeability complaint alleging fraud and willful and malicious injury. The court commented that there was no fraud or willful injury but there appeared to be defalcation by a fiduciary “if a partnership arrangement is shown.” After trial, the court stated, “If your client was a fiduciary in relation to the venture and cannot account for the proceeds, I think that that’s enough to establish defalcation.” He entered judgment against the debtor. Continue reading
I am going to refer to the Supplemental Materials a lot in class next week. Please be sure to bring those with with. They are available at Legal Books Distributing.
I will not be using the Statutory Supplement previously assigned. Don’t confuse that with my Supplement. My Supplement has cases that we will review but are not in the Hamilton text. It also has forms we will look at, a Glossary, an article on fiduciary duties, and some other things. It is here.
Also, I would not bother with older versions of my Summary of Law of Business Orgs. Get the 2019 verion ($6 bucks). I made changes in a few areas, primarily about agency and close corps.
This is a class action against debt collectors for violation of the Telephone Consumer Protection Act. The lender hired a loan servicing company. It hired debt collectors. The lender said “We didn’t make any improper calls! Our agents did.” Very nice summary of agency law.
“Henderson advances two agency principles that she believes makes USA Funds liable for the debt collectors’ TCPA violations—ratification and implied actual authority.”
My summary of the case.
Henderson v. United Student Aid Funds, Inc., 918 F.3d 1068 (9th Cir. March 2019)
Issue: Did the court err in granting summary judgment here on the issue of whether the lender here was liable for the conduct of its agents?
Holding: Yes. “[A] reasonable jury could find that USA Funds ratified the debt collectors’ calling practices by remaining silent and continuing to accept the benefits of the collectors’ tortious conduct despite knowing what the collectors were doing or, at the very least, knowing of facts that would have led a reasonable person to investigate further.”
Appeal from district court, Southern District California Continue reading
We will discuss this in class on Friday. Take a look. It’s 60 pages so bring it on your laptop – or you can print it out if you want. Judge Tighe Tentatives