Exam 37: Corporate Governance and the Sarbanes-Oxley Act

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The term of a director's office expires at the next annual shareholders' meeting following his or her election, unless terms are staggered. The Revised Model Business Corporations Act (RMBCA) allows boards of directors that consist of nine or more members to be divided into two or three classes that are elected to serve staggered terms of two or three years. The specifics of such an arrangement must be outlined in the articles of incorporation. Vacancies on a board of directors can occur because of death, illness, the resignation of a director before the expiration of his or her term, or an increase in the number of positions on the board. Such vacancies can be filled by the shareholders or the remaining directors.

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Under the Revised Model Business Corporations Act (RMBCA), a contract or transaction with a corporate director or officer is voidable by the corporation if it is unfair to the corporation. Contracts of a corporation to purchase property from, sell property to, or make loans to corporate directors or officers where the directors or officers have not disclosed their interest in the transaction are often voided under this standard. In the alternative, the corporation can affirm the contract and recover any profits from the self-dealing employee. Contracts or transactions with corporate directors or officers are enforceable if their interest in the transaction has been disclosed to the corporation, and the disinterested directors or the shareholders have approved the transaction.