Law 3102 Corps DIRECTORS AND OFFICERS Powerpoint.ppt POST MODEL

Law 3102 Corps DIRECTORS AND OFFICERS Powerpoint.ppt POST MODEL

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DIRECTORS AND OFFICERS
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Examining Actions Take by Board Underlying Issues: Allowing discretion to manage vs. accountability for actions Attracting and keeping qualified directors vs. threat of personal liability for decisions that turn out to be “bad” Two questions: What duty of care? Which decisions will be examined by a court?
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Directors’ Duties: Obedience Directors and officers must act within their respective authority. They are liable for any loss the corporation suffers because of their unauthorized acts. In some states: strictly liable In other states: liable only if they exceeded their authority intentionally or negligently.
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Directors’ Duty of Care (Diligence) RMBIA Sec. 8.30 and 8.42: A director or officer must discharge her duties: 1. in good faith 2. with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and 3. in a manner she reasonably believes to be in the best interests of the corporation
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Directors’ Duty of Care (diligence) A director or officer who has performed the duties of his office in compliance with these requirements is liable neither for any action he has taken as a director or officer nor for any failure to act. So long as directors and officers act in good faith and comply with the duty of care, the courts will not substitute their judgment for that of the board or officer.
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Duty of Care (cont.) Entitled to rely on information, reports, etc. from Officers and employees Outside professionals (i.e. lawyers, accountants) Board committees But not in good faith if reason to question
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The Business Judgment Rule (also applies to officers) Issue: To what extent will a court interfere in the internal management of corporation and substitute its judgment for that of the directors to: Enjoin or order rescission of a transaction Or hold directors personally liable for any loss to corp.
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Business Judgment Rule (cont.) Rule: Court will not interfere when
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Law 3102 Corps DIRECTORS AND OFFICERS Powerpoint.ppt POST MODEL

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