Duties of Officers, Directors, and Other Insiders

Question 1

Duty of Care

Answer 1

Directors must exercise the care of an ordinarily prudent and diligent person in like positions under similar circumstances. Standard is one of gross negligence

Question 2

Duty of Loyalty

Answer 2

Directors/officers must place the interest of the corp. above their own personal gains. 4-part test: 1) Could the corp. take advantage of the opportunity? 2) Is the opportunity in the corp.’s line of business? 3) Has the corp. expressed an interest in the opportunity? 4) Actual conflict between the company’s interest and directors action.

Question 3

Shareholder Duties

Answer 3

Where a controlling shareholder does not serve as a director or officer, he may owe fiduciary obligations to the minority shareholders in exercising control. He cannot exploit the corp. at the expense of the minority. Burden is on the controlling shareholder to prove the transaction fairness.

Question 4

Obligation of Good Faith

Answer 4

Directors/officers have an obligation to act in good faith in their relationships, dealings, and mgmt of the corp. Compensation has to be reasonable, no corp. waste, and director must be informed in order to avoid oversight.