FIDUCIARY DUTIES OWED TO THE CORPORATION

Question 1

Duty of Care

Answer 1

A director must discharge her duties in good faith and with the reasonable belief that her actions are in the best interest of the corporation. She must also use the care that a person in like position would reasonably believe appropriate under the circumstances.

Question 2

Duty of Care Burden on Challenger/Plaintiff

Answer 2

The person challenging the directors’ action on the basis of a breach of the duty of care has the burden of proving that the statutory standard above was not met.

Question 3

Duty of Loyalty on Defendant

Answer 3

Duty of loyalty cases are about conflicts of interest. The business judgment rule does not apply in duty of loyalty cases. Why? Because it can never apply when the fiduciary has a conflict of interest. So the burden in these cases is on the defendant.

Question 4

Standards for Upholding Conflicting Interest
Transactions

Answer 4

A conflicting interest transaction will not be enjoined, set aside, or give rise to an award of damages because of the director’s interest if:
(1) It was approved by a majority (but at least two) of the disinterested directors (those without a conflicting
interest). It is imperative, however, either that the director disclosed all material facts to the board or that they were known when the board approved the transaction. OR
(2) It was approved by a majority of votes entitled to be cast by disinterested shareholders
(3) Judged by the circumstances at the time the corporation entered into the transaction, it was fair to the corporation.

Question 5

Special Quorum Requirements

Answer 5

For purposes of the vote on a conflicting interest transaction, at a directors’ meeting, a quorum is a majority (at least two) of disinterested directors

Question 6

Corporate Opportunity Doctrine

Answer 6

The directors’ fiduciary duties prohibit them from diverting a business opportunity from their corporation to themselves without first giving their corporation an opportunity to act. This is known as “usurpation of a corporate opportunity.”

Question 7

Duty to Disclose

Answer 7

The directors also have a duty to disclose material corporate information to other members of the board.

Question 8

Loans

Answer 8

A corporation can make a loan to a director if it is reasonably expected to benefit the corporation.