Directors’ Liabilities and Responsibilities
Directors and Officers exercise certain powers with respect to a company, make frequent decisions regarding that company and are responsible for the company’s day to day management. However, the business decisions they make do not subject them to personal liability when a decision turns out to be bad.
Senior Executives, members of the Board of Directors and other Governing Bodies and Management of a company are generally not liable for the acts or debts of the company by reason of their status as Manager, Officer, Director, or high ranking Official.
Directors are authorized to act on behalf of a company by the company’s articles of incorporation, the Florida Business Corporation Act Chapter 607, common law and certain shareholder resolutions. Similarly, Directors’ powers and the ability to delegate the power to others are subject to the provisions of the Articles of Incorporation limiting those powers, directors’ general duties as set out in the Florida Business Corporations Act Chapter 607, common law and shareholders resolutions.
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Directors owe a number of duties to the company and many of these duties are provided in the common law and the Florida Statutes. The basic duties directors owe to the company include:
- Duty to act in good faith
- Duty to exercise independent judgment
- Duty to act with the care of an ordinarily prudent person
- Duty to act in the best interest of the company
- Duty not to enter into transactions in which the directors have an interest except in compliance with the requirements of the law
- Duty to keep proper accounting records and books
In certain cases, corporate officers and directors may be exposed to certain liabilities in their capacity as a director or corporate officer. Officers and directors can always be held personally liable for wrongful acts, even if that conduct is expressly within the scope of their employment. More specifically, the Florida Statute provides for corporate officers and directors’ liability in three different circumstances including:
- Fraudulent acts. Corporate officers and directors can be held liable when they engage in illegal activities, especially violations of criminal law. Usually, the illegal activity corporate officers and directors engage in is fraud. The corporate liability shield does not protect those who participate in criminal or fraudulent acts. Corporate officers and directors may be liable for criminal or civil liabilities if they engage in misleading investors, lying to regulators, embezzling funds or willfully committing other unlawful acts.
- Breach of fiduciary duty. Corporate officers and directors acting in professional capacity may be held liable for negligence breach of duty of care or duty of loyalty.
- Misuse of corporate form. Corporate officers and directors may be liable in cases the courts decide to pierce the corporate veil. Courts are reluctant to pierce the corporate veil and do not do so with ease. However, courts may agree to pierce the corporate veil when they believe that the stakeholders are intentionally trying to take advantage of the corporate form. In the case of a shell company the courts are likely to pierce the corporate veil and hold the officers and directors personally liable for the debts and acts of the company.
Contact us, your business attorney in Florida, to provide advice and support regarding Directors’ liabilities and responsibilities, conflict of interest transactions and related party transactions.
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