Duties of Directors; Officers

Question 1

Duties of Directors

Answer 1

• duty of care: negligence standard
  
  • directors rely on well founded reports from officers, employees, outside experts, directors to be diligent in hiring, rely on committee long as director not member of committee.
• business judgment rule: rebuttable presumption that directors acted on an informed basis, good faith, best interests of the corp. Rebut presumption if, director no good faith, not informed to extent director reasonable believed necessary before making a decision, did not show objective/independence from director’s relation; sustained failure by director to devote attention, failed to timely investigate matter of significant material concern, received financial benefit to which not entitled or any other breach of duty.

Question 2

Duty of Loyalty

Answer 2

• Director/relative w/ financial or material interest in the transaction, director liable for any breach. Bears BOP-Disinterested director approval: director w/ conflict fully discloses all material info. about the transaction and is approved by a majority of disinterested stockholders. -Entire fairness standards: despite conflict, transaction entirely fair to corp., litigation ends if director meets BOP.–Usurpation of corp opportunity: director takes something would have otherwise gone to corp whether or not the corp has an interest or expectancy in the opportunity.
  
  • Exception to liability full disclosure and disinterested majority approved director taking the opportunity.
• Competition with the corp: director liable if he engages in a business that competes with corp
• Indemnification and insurance: corp promise to pay costs of a director’s defense of litigation against her, mandatory if director is successful in litigation against her, prohibited if director is liable for improper receipt of personal benefit.
  
  • Permissive: director acted good faith with the reasonable belief that conduct as best interest of corp. or at least not opposed to best interest. Criminal proceeding when director did not have reasonable cause to believe conduct was unlawful. Can indemnity for liability if action brought by third party not corp
• Insurance: covers expense and liability directors and officers might incur in service to corp, where no indemnification.

Question 3

Officers and Other Employees

Answer 3

• Board of directors appoint officers, MD must have president, secretary, and treasurer.
• officers subject same duties & protections as directors.
• authority either direct or apparent.
• apparent when customary and reasonable for 3rd party to believe an officer authorized to do.
• Employees not fiduciary duties as directors and officers.