GENERAL FUNCTIONS
OF THE BOARD OF DIRECTORS

Table of Contents

Article I:Purpose
Article II:Duties and Responsibilities
Section A: Primary Responsibilities
Section B: Financial Structure
Section C: Policies, Objectives and Plans
Section D: Management
Section E: Controls
Section F: Employee Relations
Section G: Working Relationships
Section H: Standards of Performance
Section I: Expertise

Article I: Purpose

The Board of Directors is a supervisory body consisting of a set number of members which are defined in the Bylaws. The Board is to passon or review major decisions, to designate and remove the Chief Executive Officer, to watch out for signs of dishonesty in the top executives, and to correct incompetence or error on the part of the full-time management.

The Board should further provide direction of quality and nature to the total affairs of the business that will ensure the development and growth of the company in products, services, and in financial results.

In addition, provisions for the continuity of management of the quality and depth required to attain the objectives and serve the purpose of the business should be made by the Board.

Lastly, the Board serves as trustees for the investment of the stockholders, serves as the broad policy-setting body of the corporation, and as selectors of and advisors to the general management of the company.

Article II: Duties and Responsibilities

Section A: Primary Responsibilities

  • Oversee corporate performance.
  • Approve changes in bylaws of the company.
  • Serve as trustee for all stockholders.
  • Approve all proposals to be submitted to stockholders for approval.
  • Approve plans for conduct of shareholder meetings.
  • Owe a duty of care. Directors are liable for negligence in the performance of their duties. Whether or not a director has been negligent depends upon the facts and circumstances of a particular case. A director is called upon to bestow the care and skill which the situation demands and must perform his or her functions in good faith and in a manner that he or she reasonably believes to be in the best interest of the corporation. This duty includes the obligation to make reasonable inquiry in appropriate circumstances.
  • Serve as a fiduciary in relationship to the corporation. Directors must exercise good faith in relationships, dealings, and management of its affairs; reasonable care, prudence, and diligence in the management; and in their business judgment must use reasonable care in relying on reports of the corporation, officers and advice from counsel.
  • Owe a duty of loyalty. The Director must place the interests of the corporation above their own personal gain. This duty is to protect the corporation from abuse by self-interested members of management. Section 8 of the Clayton Act bars any person from being a director of two or more competing corporations, if those corporations would violate the anti-trust criteria by merging. (Act Section 8; codified 1200 at 15 U.S.C. Section 19.)
  • Approve overall financing programs and policies subject to authorization by stockholders when necessary.
  • Authorize appropriate officers to take actions as may be required to implement such programs.
  • Approve dividend actions.
  • Approve actions involving disposal of capital assets.
  • Approve donations and contributions.
  • Review and approve regular capital investment budget programs and authorize special individual capital investments.
  • Establish regulations and controls concerning issue transfer, and registration of company securities.
  • Authorize all leases.
  • Approve the selection of the outside auditor.
  • Approve selection of the internal auditor.
  • Each director shall familiarize himself/herself with the charter and bylaws of the company as well as the statutes governing the Board of Directors.
  • Ensure all policies of the corporation are in writing.
  • Ensure that there are specific short- and long-term objectives governing all major elements of the business, submitted in writing and approved by the Board at least annually.
  • Ensure that there is a formal organization and manpower plan designed to properly support the company’s long-term profit plan.
  • Approve long- and short-range profit and capital plans before their activation and review the progress against plan for each major division or element of the company at least twice a year.
  • Approve specific policies governing mergers and acquisitions, submitted in writing.
  • Study an advance information packet and prepare to discuss contents at the Board meetings.
  • Planning – setting objectives and deciding on strategies.
  • Organizing -staffing, dividing responsibility, training, coordinating, and communicating.
  • Directing- motivating and supervising.
  • Controlling – reviewing performance, evaluation and correcting direction.
  • Elect officers of the company and delegate management responsibility and authority to them.
  • Approve position descriptions for officers.
  • Establish Chief Executive Officer’scompensation.
  • Approve top management compensation package.
  • Provide continuity in the officer group, appraise their performance, and monitor activities of the management
  • Approve selection of the general counsel.
  • Authorize officers to sign various written instruments.
  • Approve overall programs for management development and see to it that such exists.
  • Identify the Board’s business and management’s business.
  • Identify the Board’s needs for information and arrange for its timely supply.
  • Inquire into major deficiencies in performance.
  • Identify barriers to company progress and sense the winds of change. Propose changes incompany direction and discuss business opportunities at each Board meeting.
  • Review yearly the information package supplied to the Board to ensure its adequacy.
  • Approve all pension and retirement plans and other employee benefits.
  • Assure through continuing review that all employees of the corporation act in accordance with established ethical and professional standards.
  • Approve all actions and relations with outside groups.
  • The Board members represent the stockholders and are individually and collectively responsible to them for the sound and proper performance of their duties.
  • The Board shall act in an advisory I consultative capacity to the Chief Executive Officer.
  • Directors are obligated to attend all Board meetings.
  • The Board must act as a Board, by resolution or vote atproperly called meetings, at which there is a quorum present. Statutes indicate how meetings are to be called, the notice requirements, the number necessary for a quorum and for resolutions to pass.
  • Directors shall attend the annual shareholder’s meeting.
  • Directors shall keep official record of the proceedings of the Board meetings as well as those of its committees, and secondarily, those of the meetings of shareholders. These minutes constitute the history of the collective action of those bodies. The key to a director’s potential liability is to be found in this recorded history.
  • Directors shall read all reports and proposals submitted to shareholders and approve them in writing within three days of receipt.
  • Directors of corporations discharge their fiduciary duties when in good faith they exercise business judgment in making decisions regarding the corporation. When they act in good faith, they enjoy a presumption of sound business judgment, reposing in them as directors, which courts will not disturb if any rational business purpose can be attributed to their decisions. In the absence of fraud, bad faith, gross overreaching, or abuse of discretion, courts will not interfere with the exercise of business judgment by corporate directors. This is known as the Business Judgment Rule.
  • In addition to its duties as spelled out under state law and securities regulations the Board will make available its individual expertise to assist the company when called upon by the management of the company.

Section B: Financial Structure

  • Approve overall financing programs and policies subject to authorization by stockholders when necessary.
  • Authorize appropriate officers to take actions as may be required to implement such programs.
  • Approve dividend actions.
  • Approve actions involving disposal of capital assets.
  • Approve donations and contributions.
  • Review and approve regular capital investment budget programs and authorize special individual capital investments.
  • Establish regulations and controls concerning issue transfer, and registration of company securities.
  • Authorize all leases.
  • Approve the selection of the outside auditor.
  • Approve selection of the internal auditor.
  • Each director shall familiarize himself/herself with the charter and bylaws of the company as well as the statutes governing the Board of Directors.
  • Ensure all policies of the corporation are in writing.
  • Ensure that there are specific short- and long-term objectives governing all major elements of the business, submitted in writing and approved by the Board at least annually.
  • Ensure that there is a formal organization and manpower plan designed to properly support the company’s long-term profit plan.
  • Approve long- and short-range profit and capital plans before their activation and review the progress against plan for each major division or element of the company at least twice a year.
  • Approve specific policies governing mergers and acquisitions, submitted in writing.
  • Study an advance information packet and prepare to discuss contents at the Board meetings.
  • Planning – setting objectives and deciding on strategies.
  • Organizing -staffing, dividing responsibility, training, coordinating, and communicating.
  • Directing- motivating and supervising.
  • Controlling – reviewing performance, evaluation and correcting direction.
  • Elect officers of the company and delegate management responsibility and authority to them.
  • Approve position descriptions for officers.
  • Establish Chief Executive Officer’scompensation.
  • Approve top management compensation package.
  • Provide continuity in the officer group, appraise their performance, and monitor activities of the management
  • Approve selection of the general counsel.
  • Authorize officers to sign various written instruments.
  • Approve overall programs for management development and see to it that such exists.
  • Identify the Board’s business and management’s business.
  • Identify the Board’s needs for information and arrange for its timely supply.
  • Inquire into major deficiencies in performance.
  • Identify barriers to company progress and sense the winds of change. Propose changes incompany direction and discuss business opportunities at each Board meeting.
  • Review yearly the information package supplied to the Board to ensure its adequacy.
  • Approve all pension and retirement plans and other employee benefits.
  • Assure through continuing review that all employees of the corporation act in accordance with established ethical and professional standards.
  • Approve all actions and relations with outside groups.
  • The Board members represent the stockholders and are individually and collectively responsible to them for the sound and proper performance of their duties.
  • The Board shall act in an advisory I consultative capacity to the Chief Executive Officer.
  • Directors are obligated to attend all Board meetings.
  • The Board must act as a Board, by resolution or vote atproperly called meetings, at which there is a quorum present. Statutes indicate how meetings are to be called, the notice requirements, the number necessary for a quorum and for resolutions to pass.
  • Directors shall attend the annual shareholder’s meeting.
  • Directors shall keep official record of the proceedings of the Board meetings as well as those of its committees, and secondarily, those of the meetings of shareholders. These minutes constitute the history of the collective action of those bodies. The key to a director’s potential liability is to be found in this recorded history.
  • Directors shall read all reports and proposals submitted to shareholders and approve them in writing within three days of receipt.
  • Directors of corporations discharge their fiduciary duties when in good faith they exercise business judgment in making decisions regarding the corporation. When they act in good faith, they enjoy a presumption of sound business judgment, reposing in them as directors, which courts will not disturb if any rational business purpose can be attributed to their decisions. In the absence of fraud, bad faith, gross overreaching, or abuse of discretion, courts will not interfere with the exercise of business judgment by corporate directors. This is known as the Business Judgment Rule.
  • In addition to its duties as spelled out under state law and securities regulations the Board will make available its individual expertise to assist the company when called upon by the management of the company.

Section C: Policies, Objectives and Plans

  • Each director shall familiarize himself/herself with the charter and bylaws of the company as well as the statutes governing the Board of Directors.
  • Ensure all policies of the corporation are in writing.
  • Ensure that there are specific short- and long-term objectives governing all major elements of the business, submitted in writing and approved by the Board at least annually.
  • Ensure that there is a formal organization and manpower plan designed to properly support the company’s long-term profit plan.
  • Approve long- and short-range profit and capital plans before their activation and review the progress against plan for each major division or element of the company at least twice a year.
  • Approve specific policies governing mergers and acquisitions, submitted in writing.
  • Study an advance information packet and prepare to discuss contents at the Board meetings.

Section D: Management

  • Planning – setting objectives and deciding on strategies.
  • Organizing -staffing, dividing responsibility, training, coordinating, and communicating.
  • Directing- motivating and supervising.
  • Controlling – reviewing performance, evaluation and correcting direction.
  • Elect officers of the company and delegate management responsibility and authority to them.
  • Approve position descriptions for officers.
  • Establish Chief Executive Officer’scompensation.
  • Approve top management compensation package.
  • Provide continuity in the officer group, appraise their performance, and monitor activities of the management
  • Approve selection of the general counsel.
  • Authorize officers to sign various written instruments.
  • Approve overall programs for management development and see to it that such exists.

Section E: Controls

  • Identify the Board’s business and management’s business.
  • Identify the Board’s needs for information and arrange for its timely supply.
  • Inquire into major deficiencies in performance.
  • Identify barriers to company progress and sense the winds of change. Propose changes in company direction and discuss business opportunities at each Board meeting.
  • Review yearly the information package supplied to the Board to ensure its adequacy.

Section F: Employee Relations

  • Approve all pension and retirement plans and other employee benefits.
  • Assure through continuing review that all employees of the corporation act in accordance with established ethical and professional standards.
  • Approve all actions and relations with outside groups.

Section G: Working Relationships

  • The Board members represent the stockholders and are individually and collectively responsible to them for the sound and proper performance of their duties.
  • The Board shall act in an advisory I consultative capacity to the Chief Executive Officer.

Section H: Standards of Performance

  • Directors are obligated to attend all Board meetings.
  • The Board must act as a Board, by resolution or vote atproperly called meetings, at which there is a quorum present. Statutes indicate how meetings are to be called, the notice requirements, the number necessary for a quorum and for resolutions to pass.
  • Directors shall attend the annual shareholder’s meeting.
  • Directors shall keep official record of the proceedings of the Board meetings as well as those of its committees, and secondarily, those of the meetings of shareholders. These minutes constitute the history of the collective action of those bodies. The key to a director’s potential liability is to be found in this recorded history.
  • Directors shall read all reports and proposals submitted to shareholders and approve them in writing within three days of receipt.
  • Directors of corporations discharge their fiduciary duties when in good faith they exercise business judgment in making decisions regarding the corporation. When they act in good faith, they enjoy a presumption of sound business judgment, reposing in them as directors, which courts will not disturb if any rational business purpose can be attributed to their decisions. In the absence of fraud, bad faith, gross overreaching, or abuse of discretion, courts will not interfere with the exercise of business judgment by corporate directors. This is known as the Business Judgment Rule.

Section I: Expertise

  • In addition to its duties as spelled out under state law and securities regulations the Board will make available its individual expertise to assist the company when called upon by the management of the company.

A final word about annual corporate governance and compliance – in order to maintain your corporate liability protections it is crucial to keep your corporate records up to date and the annual filings, including the corporate tax return, timely. Protecting the corporate “veil” is of utmost importance. For further information on these topics please read the articles, “The Myths of Corporate Formation and Compliance, Parts 1 and 2.”

Taking the time to effectively communicate with your corporate counsel and allowing the corporate governance process to occur on at least an annual basis by your counsel is essential to maintaining the corporate liability protections.

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