The board of directors is essentially the management body for the corporation.
Responsibilities of the board of directors include establishing all business policies and approving major contracts and undertakings. In addition, the board may also elect the president. Ordinary business practices of the corporation are carried out by the officers and employees under the directives and supervision of these directors.
The directors must act collectively for their votes and decisions to be valid. That’s why directors may only act at a board of directors meeting. This, however, requires certain formalities. One such formality is that the directors must all be notified of a forthcoming meeting in a prescribed manner, although this can be waived or provided for in the corporation’s Articles of Incorporation or bylaws.
For a directors’ meeting to be valid, there must also be a quorum of directors present. A quorum is usually a majority of the directors then serving on the board; however, the bylaws may specify another minimum number or percentage.
The board of directors must meet on a regular basis (monthly or quarterly), but in no case less than annually. These are the regular board meetings. The board may also call special meetings for matters that may arise between regular meetings. In addition, boards may call a special shareholders’ meeting by adopting a resolution stating where and when the meeting is to be held and what business is to be transacted.
The first meeting of the board of directors is important because the bylaws, the corporate seal, stock certificates and record books are adopted.
Board members, like officers, have a fiduciary duty to act in the best interests of the corporation and cannot put their own interests ahead of the corporation’s. The board must also act prudently and not negligently manage the affairs of the corporation. Finally, the board must make certain that it properly exercises its authority in managing the corporation and does not abrogate its responsibilities to others.
This means that the board must be very careful to document that each board action was reasonable, lawful and in the best interests of the corporation. This is particularly true with matters involving compensation, dividends and dealings involving officers, directors and stockholders. The record or corporate minutes of the meeting must include the arguments or statements to support the board action and must detail why the action was proper.