Director Duties To Corp

Question 1

What is the business judgment rule?

Answer 1

Presumption that directors act in good faith and in the best interests of the corp.

Protected from liability for honest mistake of business judgment.

Question 2

What is Director Duty of Care? Can you rely on others?

Answer 2

Act with the care of the RPP to their own business

OK to rely on experts, employees, officers

Question 3

What is the duty of loyalty?

Answer 3

Director cannot reap unfair benefits to the detriment of the corporation

Question 4

What are the two breaches of the duty of loyalty by a director?

Answer 4

No self dealing - “the interested director”

No usurpation or corporate opportunities- give the corp a chance to take advantage first

If director breaches - Dir must turn over profits to the corp

Question 5

How can director avoid liability for breach?

Answer 5

Material facts known and disclosed to the board and they approve or ratify by vote of disinterested directors

Material facts disclosed to SH and majority of disinterested shares authorizes or approves

Transaction was deemed fair to the corp

Question 6

Indemnification

-Prohibited

-Mandatory

Answer 6

If Director found liable to the corp - NEVER indemnify

If successful against any party on merits unless AOInc say otherwise - MANDATORY

Question 7

Permissive Indemnification of Director

Answer 7

Director acted in good faith and conduct was in BIC.

Any 1 of the following allows for permissive indemnification

• Maj vote of disinterested directors (quorum needed)
• Maj vote of committee of at least 2 disinterested directors
• Special legal counsel opinion