Take home_BLAW5330

Take home_BLAW5330 - 1 Liability of Directors Directors...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
1. Liability of Directors Director’s liability has been an issue of ongoing interest in corporate circles. Much has been written about its impact on the willingness of qualified persons to serve as corporate directors, but the potential economic costs of directors’ liability are also of concern. Excessive directors’ liability may cause corporate boards to spend significant amounts of time on averting liability, thereby reducing innovation and adversely affecting competitiveness. Personal liability may be viewed as a burden for directors; however, it can also be an important way to promote compliance and to allocate risk by injecting a measure of accountability into a corporation’s dealings with other parties. In dealing with the issue of the liability of directors, the textbook states that the ordinary rules of law relating to an agent are valid in considering the acts of a board of directors on behalf of a corporation when dealing with third persons. Individual directors making up the board are not mere employees, but part of an elected body of officers which constitute the executive agents of the corporation. The directors of a corporation have the duty of care and the duty to act in good faith, and in the best judgment of the company. The relationship of a corporate director to the corporation and its stockholders is that of fiduciary duty. In Texas, the rule is very general. The director must act in good faith and exercise ordinary care and prudence. The standard for this is the same degree of care and prudence that an ordinary person in a like position under similar circumstances would use. This is the standard rule used in determining weather a director is negligent and should be held liable. One of the cases regarding director’s liability is Francis v United Jersey Bank case. The case states that Mrs. Pritchard was not active in the business of Pritchard & Baird, and mainly her husband and their tow sons were active in the business. However, after her husband died, the company was run primarily by their two sons. Mrs. Prichard knew virtually 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
nothing of corporate affairs although she became the majority owner of the company after the death of her husband. She briefly visited the corporate offices and never read the financial statements. After her husband died, Mrs. Pritchard became incapacitated and was bedridden for six months. She started to drink heavily until her physical health deteriorated and she died. The primary issue on this appeal was weather a corporate director is personally liable in negligence for the failure to prevent misappropriation of trust funds by other directors who were also officers and shareholders of the corporation. Mrs. Prichard son had taken the company into bankruptcies due to their excessive borrowing of money. The court found that Mrs. Prichard’s neglect of duty and failure to act contributed to the corruption in the company. The standard under New Jersey Law section, N.J.S.A. 14A:6-14 makes it an
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 16

Take home_BLAW5330 - 1 Liability of Directors Directors...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online