Duty of Care flow chart

Duty of Care flow chart - r aud illegalit y conf l ict or...

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Unformatted text preview: r aud, illegalit y, conf l ict , or br each of good fait h, Dut y of L oyalt y Analysi s is t r i gger ed DUTY OF CARE/DUTY OF LOYALTY BURDEN-SHIFTING ANALYSIS Correct Methodology Burden on SH to show waste If YES, SH must show waste BUT SH or Comm. Ratification (disinterested, well-informed) If NO, Dir. must show fundamental fairness Incorrect Methodology Business Judgment Rule Duty of Care: If YES, Burden on Directors to show Fundamental Fairness *No triggering events. *Would reasonably prudent person in like circumstances make the same decision? Court defers to business decisions of directors, evaluates procedural methods Burden on Dir. to show fundamental fairness Duty of Undivided Loyalty If YES, SH has the burden of proving waste SH or Committee Ratification (disinterested, well-informed) If NO, Dir. has the burden of proving fundamental fairness *Conflict of Interest *Fraud *Illegality *Breach of Good Faith *Controlling SH has Conflict of Interest SH shows Board's primary purpose was thwarting exercise of SH vote (no full and fair opportunity to vote) Shareholder Voting SH fails to show primary purpose was thwarting SH vote Board has burden to demonstrate "compelling justification" for its actions SH has burden of proving fraud, illegality, conflict of interest, or breach of good faith ...
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