What's New IN Entity Governance – OHIO – 2016

TRENDS Competing Governance Theories Traditional Governance Protection of Shareholders Increase in Long Term Enterprise Value Protection of Creditors Only in Zone of Insolvency Business Judgment Rule (BJR) Supreme Compliance and Regulatory Governance Accountability of Corporation for its Actions Judicial and Governmental Scrutiny of Agents BJR no longer an iron clad 100% guarantee of immunity Civil and Criminal Exposure for Company’s Agents Directors, Officers, Accountants (and Lawyers ?)

Forthcoming Ohio Law Change – Corporations Library & Resources/Ohio Senate Bill 181 Current Law 1701.56 (A) Ambiguous as to Chairman being an officer New (A)(4): Chairman is not an officer unless articles, regulations or board action says otherwise New: 1701.641 for corporations and 1705.031 for limited liability companies Unclear that officers have fiduciary duties to the corporation Makes clear that officers have only fiduciary duties set forth in the statute

Officer Exculpation Perform duties In Good Faith In a manner the officer reasonably believes to be in or not opposed to the best interest of the corporation With care of an ordinary person in like position or circumstances Affirmative Defenses Officer is entitled to rely of information, reports, statements and opinions of other directors, officers, employees and agents so long as officer believes the source to be competent and reliable. Knowledge by the officer to the contrary voids her right to rely.

Officer Exculpation Burden of Proof Culpability: Plaintiff must first prove by clear and convincing evidence that officer did not act (1) in good faith or (2) in a manner the officer reasonably believed was not in the best interest or opposed to the best interest of the corporation or (3) without the care of an ordinary person in similar circumstances. Damages: Clear and convincing evidence in court that proves that (1) the officer had a deliberate intent to cause injury to the corporation or (2) the officer’s actions were undertaken with reckless disregard for the best interest of the corporation.

DAMAGES TEST EXCEPTION Opt – Out Rights A corporation can opt-out of the damages test of the Officer Exculpation provision by expressly referencing the opt out right in (1) the corporation’s articles or regulations or (2) a written agreement between the corporation and the officer

Forthcoming Ohio Law Change – LLC Library And Resources\Ohio Senate Bill 181.pdf Current Law New: 1705.031 Contracts or Transactions with Members and Managers; authority to fix compensation Confirms that Chapter 1705 applies to all Ohio LLCs (including single member entities) 1705.081 Clarifies that manager’s duties can be the same as member’s duties

Forthcoming Ohio Law Change – LLC Library And Resources\Ohio Senate Bill 181.pdf Current Law New: 1705. 081(C) Waiver and Elimination of fiduciary duties permitted if done in writing 1705.081 (D) Increases maximum freedom on contract in Operating Agreement (subject to stated limits)

Forthcoming Ohio Law CHANGE – LLC Library And Resources\Ohio Senate Bill 181.pdf Current Law 1705.281 Members Duty of Loyalty does not include non-compete and conflict of interest can be cleared by safe harbor of 1705.31(A)(a), (b) or (c) 1705.081 (D) Increases maximum freedom on contract in Operating Agreement (subject to stated limits)

Forthcoming Ohio Law CHANGE – LLC Library And Resources\Ohio Senate Bill 181.pdf Current Law New: 1705.291 LLCs do not need officers Default of fiduciary duties of LLC officers, if elected, is the same as for corporate officers

Forthcoming Ohio Law CHANGE – LLC Library And Resources\Ohio Senate Bill 181.pdf Current Law New: 1705.30 LLC officers have the same right to rely on information of others as do members and managers. 1705.48 Clarifies that lack of formality alone will not result in personal liability for members, managers and officers

GOLDMAN SACHS – WHO IS AN OFFICER ARTICLE IV Officers Section 4.1. Officers; Election or Appointment. The Board of Directors shall take such action as may be necessary from time to time to ensure that the Corporation has such officers as are necessary, under Section 5.1 of these by-laws and the Delaware General Corporation Law as currently in effect or as the same may hereafter be amended, to enable it to sign stock certificates. In addition, the Board of Directors at any time and from time to time may elect (i) one or more Chairmen of the Board and/or one or more Vice Chairmen of the Board from among its members, (ii) one or more Chief Executive Officers, one or more Presidents and/or one or more Chief Operating Officers, (iii) one or more Vice Presidents, one or more Treasurers and/or one or more Secretaries and/or (iv) one or more other officers, in the case of each of (i), (ii), (iii) and (iv) if and to the extent the Board deems desirable. The Board of Directors may give any officer such further designations or alternate titles as it considers desirable. In addition, the Board of Directors at any time and from time to time may authorize any officer of the Corporation to appoint one or more officers of the kind described in clauses (iii) and (iv) above. Any number of offices may be held by the same person and directors may hold any office unless the certificate of incorporation or these by-laws otherwise provide. Section 4.3. Powers and Duties. The officers of the Corporation shall have such powers and duties in the management of the Corporation as shall be stated in these by-laws or in a resolution of the Board of Directors which is not inconsistent with these by-laws and, to the extent not so stated, as generally pertain to their respective offices, subject to the control of the Board. A Secretary  

GOLDMAN SACHS – WHO IS AN OFFICER Sergey Aleynikov – former Goldman Sachs programmer with VP title FBI arrested him for stealing software codes as he quit Goldman Sachs Convicted of theft and sentenced to 8 years in prison Conviction overturned Sues Goldman Sachs under indemnification provision in Goldman Sachs by laws for $7 million in legal fees alleging Goldman Sachs has a mandatory obligation to indemnify Goldman argues “vice president” is a “courtesy title” and only board can elect officers. Trial court ordered indemnification; appellate court overturned and remanded for a trial on the facts for a jury to decide if Goldman Sachs VP are all officers.

Why does it matter? 1701.64 Officers - authority and removal. (A) The officers of a corporation shall consist of a president, a secretary, a treasurer, and, if desired, a chairman of the board, one or more vice-presidents, and such other officers and assistant officers as may be deemed necessary. The officers shall be elected by the directors. . . Most Regulations contain a mandatory indemnification provision of directors and officers. The Regulations are a contract between the Corporation and the beneficiaries entitled to rely thereon.

BPA ENTITY GOVERNANCE TOOLKIT General Code of Regulations (#8321560.1) Code of Conduct (#8321577.1) Guidelines on Board Authority (#5856293.1) Statement of Expectation of Directors (#5931074.1) Indemnification Provision for Regulations (#8321545.1) New Director Bench Report and Skill Matrix (# 8323256.1) Board Committees Standing Board Agenda aka Board Risk Calendar (#6679012.1) Audit Committee Charter (#6322832.1) Audit Committee Quarterly Task List (#8321534.1) Governance Committee Charter (#876777.4)

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