§372. Liabilities Directors are liable in the same manner as trustees for any wrongdoing; also for any neglect that results in loss to the corporation. For instance, they are liable if they issue stock as full-paid which is not full-paid, or pay dividends out of the capital of the company when there are no profits, or otherwise abuse their power. Contracts between directors and the corporation are generally held by the courts to be voidable but are presumptively valid. They may be voided by the corporation if any element of unfairness is involved. Contracts of this kind will always however, be more carefully scrutinized than ordinary contracts, and their validity may rest on the circumstances under which the contract was made. In a case of a threatened breach of trust by the directors or officers of a corporation, an injunction may be asked by a stockholder or stockholders to prevent this and the stockholder's rights in this respect are not affected by the amount of his holdings. The same action may be taken by a director to remedy the breaches of his codirectors. Creditors are not usually given any rights to interfere in the management of a corporation until they have obtained judgment and had an execution returned unsatisfied. "The creditors of a corporation have no right, either at law or equity, merely because they are creditors, to interfere in the management, or to go into a court of equity to restrain it from making contracts or disposing of property, unless there is fraud or breach of trust to give the court of equity jurisdiction." 2 A corporation where it is being pressed for payment of debts may make an assignment for the benefit of creditors. 2 Wither v. Lynde, 49 Ga. 290; 19 Am. Rep. 645. Stewart v. Lehigh Valley R. R. Co., 38 N. J. L. 55. Private Corporations. Thomas v. Sweet, 37 Kan. 183. §373. Qualifications Most of the states require that directors shall be stockholders of the company; also, usually, that one member of the board shall be a resident of the state of incorporation. In some of the states the stockholding requirement may be waived by provision in the charter or by-laws. $374. Vacancies and Removal of Directors A board of directors may continue to act though there be vacancies, provided sufficient members remain and are present to make up a quorum. Vacancies should, however, be filled as they occur, and authority to do this should be conferred on the board by the by-laws. The board does not possess this power unless it is specifically given. Directors cannot be removed, either by the other directors or by the stockholders, unless such power of removal is expressly given by the certificate of incorporation, the by-laws, or the statutes of the state. $375. Regular Meetings The times and places for regular meetings of the directors are fixed by the by-laws. Monthly meetings are generally prescribed. In a small company one regular meeting a year may suffice. Should action of the board prove necessary in the interim, special meetings may be readily called, or be held by consent whenever the occasion arises. § 376. Special Meetings The by-laws should clearly prescribe the method by which special meetings of the board are to be called. Usually it is provided that the president or two or more of the directors may call such meetings. The call must be followed by a notice to each director. Calls for special meetings must specify the time, the place, and the business to be transacted, these details must be repeated in the notice, and no other business than that so specified may be transacted at that meeting. $377. Quorum A majority of the whole board is usually necessary to constitute a quorum. A majority of the prescribed quorum decides the action of the board. Unless regulated by statute, the charter or by-laws may prescribe the number necessary to form a quorum. Directors cannot give proxies authorizing others to represent them and vote for them at directors' meetings. The directors occupy a position of trust and they cannot as individuals delegate to others the trust vested in them. $378. Officers The board can act only through the officers and agents which it appoints. Usually the election of officers is held at the first board meeting in each year after the election of the new directors. In this way the new directors may elect their own officers and thereby secure an official staff in harmony with their views and policy. The usual executive officers of a corporation are a president, vice-president, treasurer, and secretary. Two offices may be held by the same person if the duties are not incompatible and if the by-laws permit. The president and vice-president, as presiding officers of the board, should be chosen from its membership. If a chairman of the board exists, that official presides at all meetings of the board. In this case the general rule that the president must be a member of the board is not so imperative. If, however, the president is to be the chief executive of the company, he must almost of necessity be present at meetings of the directors, participate in their discussions and deliberations, and should therefore be a member of the board. Save as to these, the officers need not be selected from the board. The officers of the company carry out the instructions of the board, and have no independent powers or authority outside the routine duties assigned them by the by-laws or by the statutes. $379. Salaries Unless it is specified that officers are to receive salaries, they are not, as a rule, entitled to charge for their official services. Neither is it ordinarily legal for the directors to vote compensation for such official services after they are performed. To avoid misunderstanding, however, the conditions, whatever they may be, should be clearly stated in the by-laws that the officers of the corporation shall receive no salaries, or that the officers shall receive only such compensation for their services as the board may designate at the time of their appointment, or that the officers shall receive the salaries specified in the by-laws. The whole matter is one to be adjusted from a business standpoint, and much trouble is likely to be saved by a definite arrangement. If, however, an officer is neither stockholder nor director of the company and stands in no relation which would make it to his interest to serve without compensation, there will be a prima facie obligation to pay him. Officers who are also directors cannot vote salaries to themselves even though they are also holders of a majority of the stock. But an officer who is also a stockholder and a director may recover for services rendered outside his official duties if such services are authorized by the directors. $380. Vacancies and Removal of Officers The directors have power to fill, for the unexpired term, any vacancies that may occur among the officials of the cor poration. Officers cannot be removed at the pleasure of the board, unless the by-laws, charter, or statute law give the directors this power. § 381. Dividends The matter of declaring dividends, the time when they are to be declared, and the amount rest in the discretion of the board of directors. When a dividend is once publicly declared, it cannot be rescinded. If the resolution is adopted but is not known, the declaration of the dividend can be nullified. Dividends may be legally declared only from surplus or net profits. If paid from the capital or obtained in any way that will impair the capital of the company, the directors render themselves personally liable, and should the corporation become insolvent the amounts so paid may be recovered from the directors or stockholders for the benefit of creditors. The general rule in this country is that before dividends can be properly declared, any impairment of capital through business losses in previous years or through depreciation must be first made good. In other words, dividends must be declared out of "surplus." Dividends are paid only to stockholders of record and must be equal as between holders of the same class of stock. Particular stockholders may not be favored either in time or in amount of payment. § 382. Bank Deposits The moneys of a corporation should be deposited, in the name of the corporation, in some bank or trust company designated by the board of directors. Moneys so deposited should be drawn out only by checks, signed by the treasurer and countersigned by the president or by such other officers as may be properly authorized thereto. |