Business Law

Topics: Corporation, Corporate governance, Types of business entity Pages: 9 (3089 words) Published: April 1, 2013
a) A director is an individual elected the shareholders of a corporation, who carries out certain tasks established in the charter, according to The duties are a series of common law, statutory, and equitable obligations. The duties are analogous to duties owed by trustees to beneficiaries, and by agents to principals. Directors owe duties to the corporation, and not to individual shareholders, employees or creditors outside exceptional circumstances. The duties of a director are divided in two sections, the common law duties and the statutory duties of directorship. Common law duties;

Duty of Good Faith
The most general obligation of a director is the duty of acting in good faith. This requires a director to always discharge the responsibilities of the office of director honestly, conscientiously, and fairly. It also requires a director to make decisions for the corporations that are in the best interests of all the corporation's shareholders and not for the advantage or benefit of one group over another. Often a director is put in the position of having to deliver bad news to, or deny information requests from, shareholders of the corporation. Such actions may lead the shareholders to form an unfavorable opinion of the director delivering the message. As a result, a director might be tempted to avoid or delay informing the shareholders, or even to mislead the shareholders, about such news or action in order to avoid falling out of favor with or upsetting them. However, avoiding or delaying an unfavorable message or providing misleading information violates the director's duty of good faith, according to Another common violation of the statutorily-required duty of good faith occurs when a director lets personality conflicts, or even the avoidance of such conflicts, get in the way of advising the corporation in a conscientious manner. Unproductive debate or personality clashes at meetings can lead to discord among the directors and decisions being made that are not in the best interests of the corporation as an entity. On the other hand, a director is not acting in good faith if the director allows avoidance of conflicts to control the director's actions. Not every vote needs to be unanimous and sometimes the initial lone dissenter ultimately sways a board's decision by pointing out previously overlooked problems or dangers flowing from the "law of unintended consequences."

Duty of Due Care
Good faith alone is not the limit of a director's obligation to the corporation. In addition, directors are under an affirmative duty to direct and supervise the affairs of the corporation with diligence and care. Directors are not allowed to passively stick their head in the sand, turn a blind eye, or simply refrain from misconduct in order to fulfill their duty of due care. The Act defines the duty of due care as the obligation of a director to act "with the care and ordinarily prudent person in a like position would exercise under similar circumstances." However, if a director has a specialized background, the director's actions may be judged in light of that specialized background to determine whether that director complied not only with what an ordinarily prudent person would have done in the same situation, but also with what one possessing and using the specialized background and knowledge of the director in question would have done. For example, a director who has ACCA and who is reviewing the corporation's financial records or a director who is a lawyer and who is reviewing a contract on behalf of the corporation each might be held to a higher standard of care than a non-ACCA or non-lawyer director performing the same duties. Moreover, the obligation to act with due care requires directors to make "responsible inquiries" to inform themselves as to the condition of the corporation and the conduct of the corporation's affairs. It is no excuse for directors to say that...
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