Colorado § 7-108-102 - Qualifications of directors.

§ 7-108-102. Qualifications of directors.

A director shall be an individual who is eighteen years of age or older. The bylaws may prescribe other qualifications for directors. A director need not be a resident of this state or a shareholder unless the bylaws so prescribe.

Source: L. 93: Entire article added, p. 778, § 1, effective July 1, 1994. L. 2004: Entire section amended, p. 1497, § 251, effective July 1.

ANNOTATION

Law reviews. For article, "Corporate Organization: A Manual of Colorado Procedure", see 1 Rocky Mt. L. Rev. 3 (1928). For article, "The New Colorado Corporation Act", see 35 Dicta 317 (1958). For article, "Liabilities of Directors of Closely Held Corporations", see 36 U. Colo. L. Rev. 95 (1963). For article, "Conflict of Interest Transactions: Fiduciary Duties of Corporate Directors Who Are Also Controlling Shareholders", see 57 Den. L. J. 609 (1980). For article, "The 1985 Proposed Revisions to the Colorado Corporation Code", see 14 Colo. Law. 34 (1985). For article, "Colorado Expands Protections For Corporate Directors", see 16 Colo. Law. 1387 (1987).

Annotator's note. Since § 7-108-101 is similar to § 7-5-102 as it existed prior to the 1993 recodification of the "Colorado Business Corporation Act", articles 101 to 117 of title 7, cases construing that provision and its predecessors have been included in the annotations to this section.

This section vests in the board of directors of a corporation all corporate powers. People ex rel. Arkansas Valley Sugar Beet & Irrigated Land Co. v. Burke, 72 Colo. 486, 212 P. 837 (1923); Dines v. Harris, 88 Colo. 22, 291 P. 1024 (1930).

Power to issue series of stock. Directors, acting for the corporation, as they are empowered to do by the articles, have the power to issue series of stock as authorized by the articles. Paulek v. Isgar, 38 Colo. App. 29, 551 P.2d 213 (1976).

Where power to transact corporate business is lodged in the directors, stockholders cannot contract either individually or while acting together at stockholders' meetings unless all of the stockholders are in attendance at such meetings. Colo. Springs Co. v. Am. Publ'g Co., 97 F. 843 (D. Colo. 1899).

Or exercise statutory waivers. It does not lie within the power of stockholders to exercise a statutory waiver in a matter concerning the corporation; rather the discretion to waive the protection afforded by such a statute can only be exercised by the governing officials of the corporation, namely the officers or the board of directors. Weck v. District Court, 158 Colo. 521, 408 P.2d 987 (1965).

In bankruptcy the trustee acts for the directors. Since the United States bankruptcy act confers broad powers upon a trustee in bankruptcy, such a trustee takes the place and exercises the office of the directors of a corporation in bankruptcy. Weck v. District Court, 161 Colo. 384, 422 P.2d 46 (1967).

Directors occupy quasi-fiduciary relation to corporation. In addition to their statutory powers and duties, directors of a corporation are in a broad sense agents of the corporation in that they occupy a quasi-fiduciary relation to the corporation and to its stockholders. Hence they must manage the corporate affairs in good faith within the limits of the law applicable and give the corporate entity the benefit of their best judgment and care. Herald Co. v. Seawell, 472 F.2d 1081 (10th Cir. 1972).

Fiduciary duty to minority stockholder was not breached when the directors interfered with shareholder's management contract with the corporation since the shareholder was acting in his capacity as an independent contractor under the management contract with the corporation rather than as a stockholder. Bithell v. W. Care Corp., 762 P.2d 708 (Colo. App. 1988).

Discretionary powers, if honestly exercised, are not subject to control. Within the limits of their legal authority, directors of a corporation possess by necessity a large amount of discretionary power, and that power, if exercised honestly and with reason, is not subject to control by either the stockholders or the courts. Herald Co. v. Seawell, 472 F.2d 1081 (10th Cir. 1972).

Courts will not, at the instance of stockholders or otherwise, interfere with or regulate the conduct of the directors in the reasonable and honest exercise of their judgment and duties. Rywalt v. Writer Corp., 34 Colo. App. 334, 526 P.2d 316 (1974).

Thus courts will accept business judgments unless unlawful. Since management, backed by majority stock control, has a wide discretion in making business judgments, a court will hospitably accept those business judgments when made with an eye single to the interest of the corporation unless manifestly unlawful. Herald Co. v. Bonfils, 315 F. Supp. 497 (D. Colo. 1970), rev'd on other grounds sub nom. Herald v. Seawell, 472 F.2d 1081 (10th Cir. 1972).

The good faith acts of directors which are within the powers of the corporation and within the exercise of an honest business judgment are valid. Rywalt v. Writer Corp., 34 Colo. App. 334, 526 P.2d 316 (1974).

But when self-interest or improper motives are indicated inconsistent with legitimate corporate purposes or basic principles on which corporations must operate, the court has a duty to carefully scrutinize action by the directors to determine whether it was within the perimeter of permissible action. Herald Co. v. Bonfils, 315 F. Supp. 497 (D. Colo. 1970), rev'd on other grounds sub nom. Herald v. Seawell, 472 F.2d 1081 (10th Cir. 1972).

Thus a contract employing director to secure a particular corporate action violates this section. A contract of employment which obligates a director to assist one to control the corporate action of the company in securing a particular lease, regardless of his duty as a director to represent and act for all the stockholders alike is against the policy of the law under this section. Singers-Bigger v. Young, 166 F. 82 (8th Cir. 1908).

For a contract of this character would tend to deprive the stockholders of the benefit of defendant's independent and impartial judgment, subordinate the interests of the corporation, which his duty required him to serve, to the individual interests of his employer, and would be contrary to public policy and void. Singers-Bigger v. Young, 166 F. 82 (8th Cir. 1908).

Remedy of stockholders dissatisfied with corporate management is electing new directors. The officers and directors of a corporation are presumed to represent the will of a majority of the stockholders; thus, when stockholders simply become dissatisfied with corporate management, ordinarily the remedy is to install new management by the election of new directors. Weck v. District Court, 158 Colo. 521, 408 P.2d 987 (1965); Herald Co. v. Seawell, 472 F.2d 1081 (10th Cir. 1972).

This section gives directors express authority to fix compensation and the fixing of salaries by directors falls within the "business judgment" rule. Herald Co. v. Seawell, 472 F.2d 1081 (10th Cir. 1972).

Applied in Masinton v. Dean, 659 P.2d 50 (Colo. App. 1982).