Journal of the House of Representatives
of the Second Session of the 110th General Assembly
of the State of South Carolina
being the Regular Session Beginning Tuesday, January 11, 1994

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If the sole remaining director of directors constitute less than a quorum, section 8.11(a)(3) allows the remaining director or directors to fill the vacancy if the board is authorized to fill the vacancy. Assume a corporation has a board of eleven directors and the quorum is six. If five directors resign, section 8.11(a)(3) is not applicable as the directors remaining in office do not constitute less than a quorum. Four of the remaining six directors cannot fill the vacancies at a "meeting" attended by less than six directors. If six directors had resigned, section 8.11(a)(3) would apply and three directors, being a majority of the five directors then in office, would be able to fill the vacancies.
SOUTH CAROLINA REPORTERS' COMMENTS

Previously applicable statutory law was found at Section 33-8-110 of the South Carolina Business Corporation Act. Subsections (a) and (d) represent no significant change from prior law. Subsections (b) and (c) are new.

Section 33-31-812. Compensation of directors.

Unless the articles or bylaws provide otherwise, a board of directors may fix the compensation of directors.
OFFICIAL COMMENT

Section 8.12 is intended to overrule the common law doctrine that prohibits directors from setting their own compensation.

Most nonprofit corporations do not compensate individuals for serving as directors. In some nonprofit corporations compensation may be appropriate as a result of the time and effort needed to serve as a director, the responsibilities undertaken, the ability of the corporation to pay and other relevant factors. Section 8.11 allows the board to set directors' compensation for serving as directors. As a result of its power under section 8.01, the board also has the power to set the compensation of directors for serving as officers or in some other capacity. Section 8.12 does not authorize unreasonable levels of compensation. In setting directors' and officers' compensation, the board must comply with the standards contained in sections 8.30-8.33.
SOUTH CAROLINA REPORTERS' COMMENTS

This section represents no change from previously applicable statutory law.

Subarticle B

Meetings and Action of the Board

Section 33-31-820. Regular and special meetings.

(a) If the date, time, and place of a directors' meeting is fixed by the bylaws or the board, the meeting is a regular meeting. All other meetings are special meetings.

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(b) A board of directors may hold regular or special meetings in or out of this State.

(c) Unless the articles or bylaws provide otherwise, a board may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may hear each other simultaneously during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting.
OFFICIAL COMMENT

Unless the articles or bylaws provide otherwise, section 8.20 authorizes a board meeting to be conducted by any means of communication pursuant to which all participating directors may simultaneously hear each other even though no two directors are present at the same location and the meeting does not take place in any specific location.
SOUTH CAROLINA REPORTERS' COMMENTS

The distinction between "regular" and "special" meetings was found in formerly applicable statutory law at Section 33-8-220 of the South Carolina Business Corporation Act. Concerning the distinction between "regular" and "special" meetings, see Section 33-31-822.

Subsections (b) and (c) represent no substantive change from Section 33-8-200.

The word "date" in the first sentence of subsection (a) does not appear in the Model Act. It was added for clarification. Its addition does not require the use of a calendar date. A reasonable method of ascertaining a date is sufficient; for example, "The third Tuesday in January".

Section 33-31-821. Action without meeting.

(a) Unless the article or bylaws provide otherwise, action required or permitted by this chapter to be taken at a board of directors' meeting may be taken without a meeting if the action is taken by all members of the board. The action must be evidenced by one or more written consents describing the action taken, signed by each director, and included in the minutes filed with the corporate records reflecting the action taken.

(b) Action taken under this section is effective when the last director signs the consent, unless the consent specifies a different effective date.

(c) A consent signed under this section has the effect of a meeting vote and may be described as such in any document.
OFFICIAL COMMENT

Unless the articles or bylaws provide otherwise, section 8.21 allows a board of directors to take action by unanimous written consent. It allows the board to act quickly when there is a need to do so. Nonprofit corporations can act with the written consent of all the directors whether

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or not the board has appointed a committee of the board to act between board meetings (see section 8.25). Any director who objects may prevent action by written consent by withholding his or her consent. Thus, it would be impossible to remove a director by written consent if that director does not consent to the removal.

Many boilerplate forms require the corporate secretary to certify that a specified resolution was duly adopted at a board meeting on a certain date. Subsection (c) allows a corporation to describe an action by written consent as a "meeting vote" and subsection (b) indicates the effective date of the vote and empowers a corporate secretary to sign such a form when an action has been approved by unanimous written consent. This avoids the necessity of trying to convince a non-lawyer that approval of an action by written consent is really the same as approving an action at a meeting.
SOUTH CAROLINA REPORTERS' COMMENTS

The provisions of this section represent no change from formerly applicable statutory law, found at Section 33-8-210 of the South Carolina Business Corporation Act, except that the procedures of the second sentence of subsection (a) are made mandatory.

Section 33-31-822. Call and notice of meetings.

(a) Unless the articles, bylaws, or subsection (c) provides otherwise, regular meetings of the board may be held without notice.

(b) Unless the articles, bylaws, or this chapter provides otherwise, special meetings of the board must be preceded by at least two days' notice to each director of the date, time, and place, but not the purpose, of the meeting.

(c) In corporations without members, a board action to remove a director or to approve a matter that would require approval by the members if the corporation had members, is not valid unless each director is given at least seven days' written notice that the matter will be voted upon at a directors' meeting or unless notice is waived pursuant to Section 33-31-823.

(d) Unless the articles or bylaws provide otherwise, the presiding officer of the board, the president, or at least twenty percent of the directors then in office may call and give notice of a meeting of the board.
OFFICIAL COMMENT

1. Regular Meeting

If the time and place of a board meeting is fixed by the bylaws or by the board it is treated as a regular meeting. See section 8.20. At the beginning of the year nonprofit boards may set the time and place for a series of meetings for the entire year. If so, these meetings are regular meetings. Regular meetings of the board may be held without notice of

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the purpose of the meeting unless the articles, bylaws or section 8.22(c) provide otherwise. If everything had to be noticed, the ability of the board to deal with matters arising just before the meeting would be limited. In addition, absent a waiver of notice, doubt would be cast on actions taken where the notice was inadvertently omitted. While notice of agenda items is not required, good practice usually results in directors' receiving prior notice of matters that will be considered at a regular directors' meeting. An alert director should anticipate that any matter may be raised at a regular directors' meeting.

2. Special Meeting

If the time and place of a directors' meeting is not fixed by the bylaws or the board, it is a special meeting. Unless the articles, bylaws or subsection (c) applies, special meetings must be preceded by at least two days' notice of the date, time, and place, but not the purpose of the meeting. The underlying policy is the same as that of regular meetings. Directors given notice of the time and location of the meeting should be prepared to discuss any matter that is raised at the meeting. This allows directors to act expeditiously when the need to do so arises.

3. Special Notice Requirements

Nonprofit corporations, unlike business corporations, frequently operate with self-perpetuating board of directors. In many instances the need for speed and flexibility requires directors to consider matters that were not anticipated at the time the meeting was called. However, in corporations without members directors can approve certain fundamental corporate changes that are significant to the corporation. These changes include amendment of articles, amendment of certain bylaws provisions, mergers, sale of all or substantially all of the assets of a corporation, and dissolution. Such corporate changes usually require significant considered action and a period of time during which the directors can reflect on the wisdom of proceeding. Where there are no members, these matters can be approved by the board alone, without subsequent member action. To allow a time for consideration and reflection the Model Act requires that the directors be given at least seven days' written notice that these matters will be voted upon at a directors' meeting.

Nonprofit corporations with self-perpetuating boards differ in another way form nonprofit corporations with members and business corporations. In nonprofit corporations with self-perpetuating boards, the directors can be removed by a vote of the board. Section 8.08(h). (In addition, in the limited circumstances set forth in section 8.08(i), a board may remove a director elected by the members.) Due process as well as sections 8.08(e)

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and 8.22(c) require that notice of any proposed removal be given to all directors.

The notice requirements of section 8.22 can be waived pursuant to section 8.23. Moreover, the directors can approve any of these actions by unanimous written consent. See section 8.21.
SOUTH CAROLINA REPORTERS' COMMENTS

Subsections (a) and (b) do not differ in substance from formerly applicable statutory law, which was found at Section 33-8-220 of the South Carolina Business Corporation Act. Subsections (c) and (d) are new.

Section 33-31-823. Waiver of notice.

(a) A director may waive any notice required by this chapter, the articles, or bylaws. Except as provided in subsection (b), the waiver must be in writing, signed by the director entitled to the notice, and filed with the minutes or the corporate records.

(b) A director's attendance at or participation in a meeting waives any required notice of the meeting unless the director, upon arriving at the meeting or prior to the vote on a matter not noticed in conformity with this chapter, the articles, or bylaws, objects to lack of notice and does not thereafter vote for or assent to the objected to action.
OFFICIAL COMMENT

A director may waive notice either before or after a meeting. The directors may even waive failure to give a notice. Waiver may not be oral but must be in writing, signed by the director who did not receive notice. A waiver should be delivered to the secretary for inclusion in the corporate records.

A director waives his or her right to object to the required notice by attending a meeting without objecting to the improper notice. A director who wishes to attend a meeting but preserve the right to object to improper notice must object upon arriving at the meeting or prior to voting on a matter improperly noticed and not thereafter vote for or assent to the objected-to matter.
SOUTH CAROLINA REPORTERS' COMMENTS

This section represents no change in substance from formerly applicable statutory law, found at Section 33-8-230 of the South Carolina Business Corporation Act.

Section 33-31-824. Quorum and voting.

(a) Except as otherwise provided in this chapter, the articles, or bylaws, a quorum of a board of directors consists of a majority of the directors in office immediately before a meeting begins. In no event may the articles or bylaws authorize a quorum of fewer than the greater of one-third of the number of directors in office or two directors.

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(b) If a quorum is present when a vote is taken, the affirmative vote of a majority of directors present is the act of the board unless this chapter, the articles, or bylaws require the vote of a greater number of directors.

(c) A director who is present at a meeting of the board of directors or a committee of the board of directors when corporate action is taken is considered to have assented to the action taken unless:

(1) the director objects at the beginning of the meeting, or promptly upon arrival, to holding the meeting or transacting business at the meeting;

(2) the director votes against the action and the vote is entered in the minutes of the meeting;

(3) the director's dissent or abstention from the action taken is entered in the minutes of the meeting; or

(4) the director delivers written notice of dissent or abstention to the presiding officer of the meeting before its adjournment or to the corporation immediately after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action.
OFFICIAL COMMENT

In the absence of a contrary provision in the articles or bylaws, a quorum of the board of directors consists of a majority of the directors in office immediately before a board meeting begins. Except as otherwise provided in the Model Act, the articles or the bylaws, if a quorum is present, the affirmative vote of a majority of directors present is the act of the board. See section 8.31(e). The articles or bylaws may set a higher quorum or mandate a greater vote to approve an action. The quorum or vote may be set as high as 100 percent of the directors.

The Model Act prohibits the quorum from being fewer than the greater of one-third of the directors in office or two directors. For example, if a corporation has five directors and two resign, the quorum could not be less than two of the remaining three directors.

Some nonprofit corporations have categories of directors. For example, a trade association may have some directors elected by members from different geographic regions of a state. Section 8.24 allow the articles or bylaws to require that a certain number or percent of directors form each region be present and vote for a proposal before it is adopted.

Section 8.24(b) authorizes quorum breaking by requiring a quorum to be present when a vote is taken. Assume, for example, that a corporation has seven directors, the quorum is four, and four directors are present. If a director is about to lose a vote, he or she can leave the meeting before the vote is taken thereby breaking the quorum and preventing the

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remaining three directors from acting on behalf of the corporation. Prior to breaking a quorum, particularly if serious harm is done to the operations or assets of a corporation, the quorum-breaking director should consider his or her duties of care and loyalty.

The Model Act describes a quorum in terms of the number of directors in office, not the number of directors authorized. This is because nonprofit corporations frequently operate with significantly fewer directors than the number authorized. However, individual nonprofit corporations are free to base their quorum requirements on the authorized number of directors.
SOUTH CAROLINA REPORTERS' COMMENTS

This section simplifies formerly applicable statutory law, which was found at Section 33-8-240 of the South Carolina Business Corporation Act. The rules found in prior law distinguished between fixed and variable boards; this section treats both the same.

Subsection (c), which, with changes in wording not intended to make changes in meaning, is identical to Section 33-8-240(d) of the South Carolina Business Corporation Act, was not a part of the recommendation of the Revised Model Act, but was added to preserve former law.

Corporations making quorum changes should not overlook that Section 33-31-1024 imposes special rules governing bylaw amendments which change either the quorum or voting requirements for directors.

Section 33-31-825. Committees.

(a) Unless prohibited or limited by the articles or bylaws, a board of directors may create one or more committees of the board and appoint members of the board to serve on them. Each committee shall have two or more directors who serve at the pleasure of the board.

(b) The creation of a committee and appointment of members to it must be approved by the greater of:

(1) a majority of all the directors in office when the action is taken; or

(2) the number of directors required by the articles or bylaws to take action under Section 33-31-824.

(c) Sections 33-31-820 through 33-31-824, which govern meetings, action without meetings, notice and waiver of notice, and quorum and voting requirements of the board, apply to committees of the board and their members as well.

(d) To the extent specified by the board of directors or in the articles or bylaws, each committee of the board may exercise the board's authority under Section 33-31-801.

(e) A committee of the board, however, may not:

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(1) authorize distributions;

(2) approve or recommend to members dissolution, merger, or the sale, pledge, or transfer of all or substantially all of the corporation's assets;

(3) elect, appoint, or remove directors or fill vacancies on the board or on any of its committees; or

(4) adopt, amend, or repeal the articles or bylaws.

(f) The creation of, delegation of authority to, or action by a committee does not alone constitute compliance by a director with the standards of conduct described in Section 33-31-830.
OFFICIAL COMMENT

Section 8.25 deals with committees of the board of directors that exercise the powers of the board. The provisions of sections 8.20-8.24 govern action and procedures of board committees as these committees are exercising the powers of the board.

The board may delegate non-board functions to committees or individuals apart from the provisions of section 8.25. As these committees and individuals are not exercising board powers, the provisions of section 8.25 do not apply to them. The directors must meet their duties under sections 8.30 and 8.31 when delegating board or non-board functions.

Board committees may be established in the absence of an article or bylaw provision prohibiting them or limiting their scope. To ensure there is a broad consensus in appointing a board committee and its members, section 8.25(b) requires a greater vote than would normally be required for board action. The vote required is the greater of the majority of the directors in office or such higher number as the articles or bylaws require to take action under section 8.24.

Except as limited by the articles, bylaws or subsection (e), a board committee may exercise the board's authority under section 8.01 to the extent specified by the board in the resolution establishing the committee or to the extent set forth in the articles or bylaws. Nonprofit corporations frequently make use of committees and delegate responsibility to them for developing long-term plans, supervising investments, raising money, making grants, and evaluating management. Section 8.30 recognizes the diverse purposes that committees may serve and provides that a board member may rely on information and reports of these committees if the director is not a member of the committee and if the director reasonably believes the committee merits confidence.

Section 8.25(f) makes clear that although the board of directors may delegate to a committee the authority to take action, the designation of the committee, the delegation of authority to it, and action by the committee

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will not alone constitute compliance by a non-committee board member with his responsibility under section 8.30. On the other hand, a non-committee director also will automatically incur liability should the action of the particular committee fail to meet the standard of care set out in section 8.30. The non-committee member's liability in these cases will depend upon whether he failed to comply with section 8.30(b)(3). Factors to be considered in this regard will include the care used in the delegation to and supervision over the committee, and the amount of knowledge regarding the particular matter which the non-committee director has available to him. Care in delegation and supervision includes appraisal of the capabilities and diligence of the committee directors in light of the subject and its relative importance and receipt of other reports concerning committee activities. The enumeration of these factors is intended to emphasize that directors may not abdicate their responsibilities and secure exoneration from liability simply by delegating authority to board committees. Rather, a director against whom liability is asserted based upon acts of a committee of which he is not a member avoids liability if the standards contained in section 8.30 are met.

Section 8.25(f) has no application to a member of the committee itself. The standard applicable to a committee member is set forth in section 8.30(a). Official Comment to Model Business Corporation Act Section 8.25.
SOUTH CAROLINA REPORTERS' COMMENTS

This section is as similar as possible to formerly applicable statutory law, found at Section 33-8-250 of the South Carolina Business Corporation Act, omitting only provisions relating to mergers and share issuance inapplicable to nonprofit corporations. This section is not intended to prevent creation by the board of, or provision in the articles or bylaws for, committees not complying with subsections (a) and (b) of this section. Such noncomplying committees would not, however, be empowered to exercise board's authority, nor would they be "committees of the board" for purposes of other provisions of this Chapter. An example of a permissible, non-complying committee would be a board-appointed planning committee including as members non-director consultants and staff.

Subarticle C

Standards of Conduct

Section 33-31-830. General standards for directors.

(a) A director shall discharge his duties as a director, including his duties as a member of a committee:

(1) in good faith;

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(2) with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and

(3) in a manner the director reasonably believes to be in the best interests of the corporation.

(b) In discharging his or her duties, a director is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by:

(1) one or more officers or employees of the corporation who the director reasonably believes is reliable and competent in the matters presented;

(2) legal counsel, public accountants, or other persons as to matters the director reasonably believes are within the person's professional or expert competence;

(3) a committee of the board of which the director is not a member, as to matters within its jurisdiction, if the director reasonably believes the committee merits confidence; or

(4) in the case of religious corporations, religious authorities and ministers, priests, rabbis, or other persons whose position or duties in the religion organization the director believes justify reliance and confidence and who the director believes is reliable and competent in the matters presented.

(c) A director is not acting in good faith if the director has knowledge concerning the matter in question that makes reliance otherwise permitted by subsection (b) unwarranted.

(d) A director is not liable to the corporation, a member, or any other person for any action taken or not taken as a director, if the director acted in compliance with this section.

(e) A director shall not be deemed to be a trustee with respect to the corporation or with respect to any property held or administered by the corporation, including without limit, property that may be subject to restrictions imposed by the donor or transferror of the property.

(f) An action against a director asserting the director's failure to act in compliance with this section and consequent liability must be commenced before the sooner of (i) three years after the failure complained of or (ii) two years after the harm complained of is, or reasonably should have been, discovered. This limitations period does not apply if the failure to act in compliance with this section has been fraudulently concealed.
OFFICIAL COMMENT

1. General Standards of Conduct

Section 8.30(a) sets forth the general standards of conduct for directors of nonprofit corporations. It settles the dispute as to whether directors of

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