Business Law Class Notes
LIABILITY OF DIRECTORS
A director plays a vital role in a corporate organization. They manage the business, design business policies and select the officers. Liability of the directors is a crucial aspect where a director is expected to be honest, vigilant and protect the shareholders trust in him. Shareholders own the corporation and elect the board of directors whose approval is required for major corporate actions.
Liability comes into picture when directors or officers tend to cause financial harm to the corporation, commit a crime or try to breach their duty of care to the corporation. The directors often forget that they are elected or appointed to the position of the director by the shareholders based on their qualifications and with the responsibility and trust to protect the shareholders interest and maximize their gain. However, they start placing their own interest in front of the interest of the shareholders and the company. Hence the integrity and loyalty of the directors is questioned on continues basis in the business world.
Directors are found to be liable when they intentionally or negligently cause harm to the third parties. A couple of times they fraudulently induce the association to breach the contract, terminate employees on false grounds or defame them. Section 21.401 of Texas code, does provide the board of directors of Texas corporations with freedom to manage and steer the company as long as the director do not abuse that freedom and power.
Duty of Care:
In the Duty of Care, the directors owe a fiduciary duty to the company, shareholders, clients and third party.
A director is held liable under the following circumstances: * If he does not work in faith and interest of the company, shareholders and client. * Breaching the duty to monitor and supervise the company. * Laxity in monitoring company’s activities, business or activities of the management. * Failure to stop wrongdoing activities of the management or
A director plays a vital role in a corporate organization. They manage the business, design business policies and select the officers. Liability of the directors is a crucial aspect where a director is expected to be honest, vigilant and protect the shareholders trust in him. Shareholders own the corporation and elect the board of directors whose approval is required for major corporate actions.
Liability comes into picture when directors or officers tend to cause financial harm to the corporation, commit a crime or try to breach their duty of care to the corporation. The directors often forget that they are elected or appointed to the position of the director by the shareholders based on their qualifications and with the responsibility and trust to protect the shareholders interest and maximize their gain. However, they start placing their own interest in front of the interest of the shareholders and the company. Hence the integrity and loyalty of the directors is questioned on continues basis in the business world.
Directors are found to be liable when they intentionally or negligently cause harm to the third parties. A couple of times they fraudulently induce the association to breach the contract, terminate employees on false grounds or defame them. Section 21.401 of Texas code, does provide the board of directors of Texas corporations with freedom to manage and steer the company as long as the director do not abuse that freedom and power.
Duty of Care:
In the Duty of Care, the directors owe a fiduciary duty to the company, shareholders, clients and third party.
A director is held liable under the following circumstances: * If he does not work in faith and interest of the company, shareholders and client. * Breaching the duty to monitor and supervise the company. * Laxity in monitoring company’s activities, business or activities of the management. * Failure to stop wrongdoing activities of the management or