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Fiduciary Duties for Directors - Essay Example

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Under the Delaware Law, business and corporation’s affairs have to be managed through the direction of a board of governors…
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Fiduciary Duties for Directors
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Download file to see previous pages 4). The law specifies that some of the fiduciary duties of a director are care, loyalty and good faith. In Charitable Corp v. Sutton, it was explained that directors of corporations would be regarded as agents and trustees who were required by law to act with ‘fidelity and reasonable diligence” (p.6). These three duties also give rise to a fourth, but equally important duty, that of disclosure. Duty of disclosure means that directors are required to disclose full and truthful information when they are communicating with stakeholders. The Delaware Court of Chancery has in the past stated that “an obligation to the community of interest that sustains the corporation, to exercise judgment in an informed, good faith effort to maximize the corporation’s long term wealth creating capacity” (p.12). Directors of corporations that are facing insolvency owe fiduciary duties to the corporation itself and to shareholder, never to creditors. Duty of Loyalty This fiduciary duty can be traced back to the Guth v Loft case in which the state Supreme Court passed that “corporate officers and directors are not allowed to use their position of trust and confidence to further their private interests” (p.22). ...
It is the way in which a director handles the corporation’s affairs that will determine whether or not his conduct led to a breach in loyalty duty. The Delaware fiduciary law lays out some of the situations in which duty of loyalty may be implicated. Thee include: contracts between the company and directors or other corporations in which the director may have some material interest, dealings between a parent company and a subsidiary, management buy outs, corporate reorganizations or acquisitions which may result in differing interests between the majority and minority stakeholders, insider trading, taking over corporate opportunities and competition by the directors with the company. If directors fail to act when faced with a known duty, they can be charged with violating duty of loyalty (p.24). Duty of Care Directors in corporations are obligated by Delaware law to seek ample information before making any business decision. They are also required to “act with the requisite care in making such decisions” (p.32). Although the directors are requires to act with utmost diligence and highest level of due care, they are not obligated to read or to know each and every particular of a contract or any related legal documents. They only need considerable information about a particular situation so as not to make any careless decisions. If the directors are found to have made a decision out of gross negligence, then they can be charged in court for a breach in the duty of care. In order to act diligently, the law in Delaware requires that directors should regularly attend board meetings. They are also required to take their time to review, understand and evaluate all information that they have at their disposal and they should ensure ...Download file to see next pages Read More
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