Appointedhired by directors to manage day to day decisions Have broad duties of

Appointedhired by directors to manage day to day

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Appointed/hired by directors to manage day-to-day decisions Have broad duties of care & loyalty to directors Employees Workers Business Judgment Rule Makes directors & managers immune from liability When problems result from honest mistakes in judgment If there was a reasonable basis for their decisions If they acted in good faith Young woman working in office Kovacs-Whaley v. Wellness Solutions, Inc. In Lewis on Behalf of Citizens Sav. Bank & Trust Co. v. Boyd, 838 S.W.2d 215 (Tenn. Ct. App. 1992), this court discussed the business judgment rule as follows: Tennessee's courts have consistently followed a noninterventionist policy with regard to internal corporate matters. They have recognized that directors have broad management discretion. Chism v. Mid-South Milling Co., 762 S.W.2d 552, 556 (Tenn.1988) (discretion in employing or discharging corporate officers); Wallace v. Lincoln Sav. Bank, 89 Tenn. 630, 636, 15 S.W. 448, 449-50 (1891). Accordingly, they have declined to substitute their judgment for that of a corporation's board of directors when the board has acted in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes. French v. Appalachian Elec. Coop., 580Page 12S.W.2d 565, 570 (Tenn. Ct. App.1978); Range v. Tennessee Burley Tobacco Growers Ass'n, 41 Tenn. App. 667, 675, 298 S.W.2d 545, 549 (1955), cert. denied, 355 U.S. 813, 78 S.Ct. 11, 2 L.Ed.2d 30 (1958). Kovacs-Whaley These decisions squarely align Tennessee with the jurisdictions recognizing and following the "business judgment rule." Levine v. Smith, 591 A.2d 194, 197-98 (Del.1991); Auerbach v. Bennett, 47 N.Y.2d 619, 419 N.Y.S.2d 920, 926, 393 N.E.2d 994, 999-1000 (1979); 3A W. Fletcher, Cyclopedia of the Law of Private Corporations § 1039 (rev. perm. ed. 1986); Dennis J. Block, Stephen A. Radin & James P. Rosenzweig, The Role of the Business Judgment Rule in Shareholder Litigation at the Turn of the
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Decade, 45 Bus.Law. 469, 489-90 (1990) ("Block, Radin & Rosenzweig"). Thus, like other courts following the business judgment rule, we presume that a corporation's directors, when making a business decision, acted on an informed basis, in good faith, and with the honest belief that their decision was in the corporation's best interests. Spiegel v. Buntrock, 571 A.2d 767, 774 (Del.1990); Zapata Corp. v. Maldonado, 430 A.2d 779, 782 (Del.1981).Lewis, 838 S.W.2d at 220-21. Business Judgment Rule Not applicable to breach of Duty of Loyalty claims What does “acting on an informed basis” mean? Board Member X asks internal accountant to prepare a valuation for the board to consider when it votes on a transaction. Problems? Termination of the Corporation (Dissolution) Voluntary Approval of the shareholders and the Board of Directors Articles of Dissolution are filed with the state Involuntary The state dissolves it Sometimes due to fraud in the establishment of corporation or bankruptcy of the corporation “Wind up” business to pay creditors and disburse profits to shareholders Refer to “Mad at Each Other? . . .” (lawsuit dismissed; disagreement was “nothing more than a business dispute”) Professional Corporations (PCs)
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