BOARD OF DIRECTORS
A group of people comprising the governing body of a corporation.
The shareholders of a corporation hold an
election to choose people who have been nomi-
nated to direct or manage the corporation as a
board. In the past nearly all states required that
at least three directors run a corporation. The
laws have changed, however, since many corpo-
rations have only one or two shareholders and
therefore require only one or two directors to
serve on the board.
Directors are elected at the first annual
meeting of shareholders and at each successive
annual meeting for one-year terms, unless they
are divided into classes. In a corporation that
divides its directors into classes, called a classi-
fied board, conditions are often imposed con-
cerning the minimum size of the board, the
minimum number of directors to be elected
annually, and the maximum number of classes
or maximum terms. The purpose of a classi-
fied board, which is expressly permitted by
most statutes, is to make takeover attempts
more difficult by staggering the terms of the
directors.
Removal of a director during the course of
his or her term may occur for cause by share-
holders or by the board itself if there is a provi-
sion in the bylaws or articles of incorporation
that confers such power upon them. The
removal of a director for cause is reviewable by a
court. Many jurisdictions have put into effect
statutes that concern the removal of directors
with or without cause.
The functions of directors involve a fiduci-
ary duty to the corporation. Directors are in
control of others’ property and their powers are
derived primarily from statute.
Directors are responsible for determining
and executing corporate policy. For example,
they make decisions regarding supervision of
the entire enterprise and regarding products and
services.
Liabilities of directors extend to both their
individual and joint actions. A director who
commits a TORT against his or her corporation
can be held personally liable.
Directors are bound by certain duties such
as the duty to act within the scope of their
68 BOARD OF DIRECTORS
authority and to exercise due care in the per-
