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Seminar on May 29

(Summary Report, By Gong Shu)
 
Time:18:30~19:30, May 29, 2011
Place:in the campus
Moderator:Gong Shu
Member:Wang Junqi, Liao Zhengyong, Ma Hongjun
Scope of the presentation: Chapter 8 & Section 1~4 of Chapter 9.

PartⅠThe discussion

Topics:
1. How many and what types of officers are mandated according to the statutory requirements? Will the officer be personally liable when binding the corporation to deal with TPs?
2. Please talk about your understanding on "duty of care" and the "Business Judgment Rule"?



Gong Shu
1. Generally, there are three main types of officers that take charge of the management of the corporation. In most close corporation, the senior executive is called the president, the principle financial officer the “treasurer” and the keeper of records the secretary. While in public corporations, the name of the corresponding officers is the chief executive officers, the chief financial officers and the chief accounting officer, and the chief operating officer. In modern times, statutes allow the same individual to simultaneously hold more than one officer in a corporation.
Normally, an officer needs not to undertake personal responsibilities if he act within his authority. However, when an officer expressly guarantees the performance by the corporation, or creates the impression that he is negotiating as an individual, or even does not disclose he is acting solely on behalf of the corporation, he will be personally liable.
2. The duty of care evolved at common law at first and now codified in many states. It is based on the idea that directors must take their job seriously. That is, a director must discharge his duties with the care that a person in like position would reasonably believe appropriate under the circumstances. Managers may get in trouble under the duty of care either by being lazy or by having the corporation do something really dumb. There are two ways to breach the duty of care, nonfeasance and misfeasance. Nonfeasance is when a director basically does not do any thing toward discharging the job. And with misfeasance, the board of directors has done something but hurt the corporation in some way. A share holder may sue the board for fail to use the degree of skill and care. Then they may face the obstacle of the business judgment rule. The BJR means that as long as business decisions are based upon reasonable information and are not irrational, managers making them are not liable, even it is disastrous to the corporation. That is, a director is not exposed to personal liability for an unwise decision. The BJR can only be overcome by showing gross negligence or recklessness of the directors.

Liao Zhengyong:

Question one:
There are four types of officers that required by the statutory requirement. They are the president, the vice president, the secretary and the treasurer. Meanwhile, the statutes always permits the corporation to name additional officers, and the public corporations, officers titles usually reflect the executive function .Thus, the chief executive officer, the chief financial officer, the operating officer, the chief accounting officer and the chief legal officer appears.
As to the second point, whether the officer is personally liable when binding corporation to deal with TPs or not, I think it depends. Usually, the officer who acts within her authority is not personally liable on the transaction with TPs, of course, this it easy to understand ,because in this situation ,the officer is on behalf of the corporation, herself if not a party of contract. However, in the following two situations, may be the officer be personally liable for the transaction with TPs.
First one, if an officer negotiates a transaction without disclosing that she is acting solely on behalf of the corporation, she is personally liable to TPs on generally principles relating to undisclosed principals. Second one, if the officer is acting beyond the scope of her authority she may be personally liable on the transaction unless the corporation takes the agent off the hook by ratifying the transaction. In a word, if the officer does anything on behalf of the corporation legally, she if free of personal liability, otherwise, the result can be different.
Question two:
First point, duty of care
Duty of care usually means that a director must take her job seriously, that is to say, the director must discharge her duties with the care that a person in like position would reasonably believe appropriate under the circumstances .I think this is a fundamental requirement to directors because the director has the power to control the company, so, of course, she should do what they should to run the corporation perfectly. Usually, there are two ways for directors to breach the duty of care; nonfeasance and misfeasance. Nonfeasance means the director do not do anything toward discharging the job. Misfeasance usually means that the director do something illegal, may be a criminal. These two ways often bring directors into duty of care cases, but most of the time, we can see that ,the defendant, I mean the director ,were not liable ,because in this kind of cases, the plaintiff has the burden of showing that the defendant failed to meet the standard of care, while it usually difficult to do this.
Then, I want to say something about business judgment of rule. In my opinion, business judgment rule provides a protection to directors, by this rule, directors can be free of personal liability, but the starting point is that directors do not breach the duty of care. The business judgment rule means that as long as business decisions based upon reasonable information and are not irrational, managers making them are not liable ,even if the decisions turn out to be wrong to the corporation ,that is to say, directors are not guarantors to success, they do not have to be right, they just need to act care and diligence.

Ma Hongjun:
(1)For the first question, I think every corporation have three or four officers, for example, a president, a secretary, a treasurer, and in some states a vice president. And the statutes have always permitte the corporation to name additional officers. In many close corporations have three or four separate people serving as officers. But the president and secretary had to be different people. The modern view is that the same individual may simultaneously hold more than office in a corporation. Contemporary statutes tend not require three or four officers. Most close corporations tend to use the traditional titles for their officers and in public corporations, officers’ titles usually reflect their executive function. In pubilc corporations, it is usually an intermediate management position, though sometimes one person serves as both CEO and president.
(2)Officers are agents of the corporation. The putative agent produce a certified copy of a boar resolution authorizing the deal. If that resolution is executed by the corporate secretary and the corporate seal is affixed, the corporation is estopped to deny the truthfulness of the facts stated. But this method will not help TP on the many small transactions for which there is no board approval. On the other hand, if the corporation accepts a benefit of the contract, it will be held to have ratified the deal and be liable.
For the second question, in my opinion, the duty of care evolved at common law. It is that a director must take her jop seriously. There are two ways to breach the duty of care, nonfeasance and misfeasance. Nonfeasance is when a director basically doesn’t do anything toward discharging the jop. With misfeasance, the board of directors has done something, but whatever the board decided has hurt the corporation in some way.
The BJR means that as long as business dicisions are based upon reasonable information and are not irrational, managers making then are not liable, even if the decisions turn out to be disastrous to the corporation. Director are not guarantors of success. But they must act care and dilience. The law cannot require perfection, it can require only that she do appropriate homework and come to a conclusion that is not irrational. Without the BJR, directors could be sue for any dicision that turned out badly for the company.   
     
Wang Junqi:
question1:Traditionally, statues required that every corporation have three or four officers--a president, a secretary, a treasurer, and in some states a vice president. The modern view, there is no restriction from the corporate law. the same individual may simultaneously hold more than one office in a corporation, now statues requires the existence of only one officer, and mandate that one office be responsible for preparing minutes of the directors' and shareholders' meetings and for maintaining and authenticating the records of the corporation and so on..
When the officer who acts within her authority is not personally liable on the transaction because she is acting as an agent for a disclosed principal, and is not a party to the contract. But the officers will be personally liable in any of the following theories .first; an officer may expressly guarantee the performance by the corporation. Second, an agent may bind herself by creating the impression that she is negotiating as an individual rather than as agent of the corporation. third, if an officer negotiates a transaction without disclosing that she is acting solely on behalf of the corporation. she impersonally liable to TP on general agency principles relating to unclosed principals. fourth, if the agent is acting beyond the scope of her authority, she may be personally liable on the transaction unless the corporation takes the agent off the hook by ratifying the transaction .fifth, liability might be imposed by statue, failure to pay franchise taxes or to publish a notice of incorporation may lead to individual as well as corporate liability on corporate obligations.
question2: The duty of care provides that directors shall discharge their duties with the care that a person in a position would reasonably believe appropriate under the circumstances .the duty of care is aimed at ensuring that directors take their job serious. directors get in trouble under the duty of care by being lazy or having the corporation do something really stupid .there are two ways to breach the duty of care--nonfeasance and misfeasance. the duty of care tells us a lesson: if one person is going to take the job, she has to do the work .if she breached his duty of care to the corporation by failing to exercise the diligence, care and skill that someone reasonably would use in that position. And in duty of care cases in most states, the plaintiff must also show causation. They must demonstrate that the defendant’s failure to meet the duty of care resulted in harm to the corporation.
"bossiness judgment rule”, the court will police whether the decision makers undertook sufficient consideration of the issue, and will not second-guess a decision made in good faith even if the decision turns out to be a disaster for the company .the BJR means that as long as business decisions are based upon reasonable information and are not irrational, managers making them are not liable. Even if the decisions turn out to be disastrous to the corporation. Directors are not guarantors of success. They do not have to be right; they must act care and diligence. Directors make mistake. And sometimes no matter how careful managers are unexpected events can change what looked like a good idea into a loser. So the law cannot require perfection. it can require only that she do appropriate homework and come to a conclusion that is not irrational. Without the BJR, directors could be sued for any decision that turned out badly for the company. The potential liability could be devastating particularly in the publicly-traded corporation where mistakes in the market may have huge consequences.


 
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