Essay 2 -- Business Judgement rule, liability, Board approval, excuplatory articles of provisions Flashcards
What do directors owe to their org?
1) a duty of loyalty
2) a duty of care
To violate a duty of loyalty, what must be shown of a director?
1) they received a personal benefit from the transaction they approved
or
2) they stood on both sides of the transactions being approved
How can directors fail their duty of care?
1) by failing to exercising care in informing themselves about the transactions they were approving
What duty do directors have under the duty of care?
Per the MBCA, they have a duty to exercise an informed business judgement and must excercise care in being informed
What is generally subject to the BJR?
The excercise of managerial powers by a director
What is the business judgement rule?
A presumption, that in making a business decision, directors of a Corp acted on an informed basis, in good faith, and in honest belief the action taken was the best interest in a cimpany
If a party is seeking to rebut the BJR, what must they show?
If attacking a board decision as uninformed, they must defeat the presumption that a boards BJ was an informed one.
To excercise adequate care in becoming informed, what can a board do?
1) ask how fair market value was determined
2)employ an independent party to evaluate properties being purchased
In performing a duty to become informed, what can directors rely on?
Info, opinions, reports, or statements of corporate officers UNLESS they have knowledge that reliance is unwarranted.
Under the MBCA, when is a director not protected from liability in reliance on corporate officers information?
If they have knowledge that makes reliance unwarranted.
IF a director stands on both sides of a transaction, what law is not applied?
The BJR is NOT applied.
Under the MBCA, when is a director liable to a corporation?
When the party asserting liability asserts elements like
–receipt of financial benefit by the director to which director is not entitled
– Other actionable breach of duty by the director to deal fairly with the Corp
If directors are on both sides of a transaction, what burden do they have?
The burden to establish the entire fairness of the transaction.
If transactions are approved by a disinterested board of directors, what are they generally subject to?
The business judgement rule and party challenging would have to show the transactions were unfair or even prove they constituted waste.
Approval by fully informed disinterested directors permits
invocation of the business judgment rule and limits judicial review to issues of _____ ______ with the burden of proof ____ ___ ______ _______ ___ ________
gift or waste
upon the party attacking transaction
In a model act juris, a transaction approved by a disinterested board may fall under _____ _______ and is _________ ____ ______
When will approval by a disinterest board not trigger BJR?
if the director has not disclosed all material facts about the director’s
interest in the transaction.
What does required disclosure mean to trigger the BJR?
all facts known by the director
respecting the subject matter of the transaction
that an ordinarily prudent person would
reasonably believe
to be material to a judgment about whether or not to proceed with the transaction.
What does an exculpatory provision in a corporations article of incorporations include?
1) a provision shielding its directors
2) from liability for money damages
3) for the failure to exercise adequate care in the performance of their duties as directors.
What types of exculpatory provisions does Delaware allow? And what do they not allow for?
provisions that protect directors from liability for breaches of the duty of
care,
but does not permit provisions that protect directors from liability:
for any breach of the duty of loyalty
for acts or omissions that are not in good faith
or for any transactions from which the director received an improper personal benefit.
What does the MBCA permit exculpatory provisions? And not permit?
Model Business Corporation Act permits provisions:
that protect directors from liability for breaches of the duty of care,
2) does not permit provisions
that limit or eliminate liability “for the amount of a financial benefit received by a director to which he is
not entitled.”
What are a few types of behavior that would not be protected by an exculpatory provisions?
1) engaging in self dealing
2) usurped corporate opportunity
3) excessive compensation
What does not establish bad faith? What does?
Negligence… Gross negligence
What do exculpatory provisions not protect directors for?
Actions under taken in bad faith or in breach of duty of loyalty (like improper personal benefit)
