Fiduciary Duties of Officers and Directors
We assist companies, officers and board of directors, on devising processes and procedures to satisfy the obligations of officers and directors, creating committees, independent board of directors and structuring the relationship between the board and committees, advising officers about reporting obligations, creating corporate policies to ensure compliance with federal and state regulations. In addition, we advise on corporate structuring in preparation for, and governance implications arising from mergers and acquisitions transactions, capital raising, and fiduciary duties of officers and directors. We further advise on how to address shareholder demands, proxy proposals in relation to majority voting, special meeting requests, staggered boards and rights plans.
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Corporate officers and directors of U.S. companies are generally expected to perform their duties with care, skill and prudence. It is desirable for officers and directors to be prudent, careful and diligent while accepting risks, but the duty of care is balanced with the business judgement of directors and officers when engaging in business decisions. The business judgment shelters directors from liability for decisions that prove in hindsight to have been ill-advised or simply unlucky because the substantive merits of directors’ business decisions are not examined.
However, the business judgement rule and its applicability in courts varies from state to state. In the majority of states, not all business decisions made by a board of directors are protected; the relationship between the duty of care and the business judgment rule is complex and requires further inquiry. Under the view of the majority, any business judgment is immune from judicial review only if the directors first followed adequate procedures in reaching it. In fact, directors must follow adequate internal processes and procedures for the business judgment protection to apply. Only those decisions with respect to which directors first exercised due care and adequately informed themselves immunize directors and officers from liability.
States now, may authorize shareholders to adopt charter provisions under which directors and in some states officers as well, may be liable only for conduct that involves illegality, a breach of the duty of loyalty, or intentional misconduct. Other states require corporate officers and directors to act in good faith or specify that the corporate official is only liable for damages if his or her conduct constitutes willful misconduct or recklessness.
As with the duty of care, it is desirable for corporate officials to uphold the duty of loyalty. Conceptually, the duty of loyalty represents a single obligation that corporate officers and directors owe to the corporation. With respect to duty of loyalty of officers and directors, the concern surrounds self-dealing transactions, taking business opportunities that are of potential interest to the corporation and have a corporate official compete with the corporation.
There are also certain potential liabilities of officers and directors that are governed by rules other than the general duty of care. These include liability for violation of duty of loyalty, unauthorized payment of dividends and liability for violation of requirements of the federal securities laws with respect to disclosures in certain formal documents. These liabilities apply to corporations, partnerships and limited liability companies alike and officers, directors, members and partners all have these obligations to fulfill.
Contact us, your business attorney in Florida, to counsel officers and directors on fiduciary duties and strategic considerations.