Question

Discuss the fiduciary duty and the business judgment rule. Can you find and example?

Answer 1

Fiduciary duty- Each corporate director owes a fiduciary duty to the company that he / she directs: a director conducts his / her duties as a director, including his / her duties as a member of a committee: (a) in good faith; (b) with caution that an normally prudent individual in a similar role should practice in similar circumstances; and (c) in a manner that he / she fairly believes to be in the best integrated role.

Small business owners sometimes fail to comply with all the requisite formalities that go along with a company, and often improperly, although inadvertently, use business assets and accounts. In other situations, a corporate manager / owner of a company can make decisions that will bring a profit to the director's other relevant business interests. There are countless different circumstances that can occur for closely held corporate owners / directors in which they can theoretically violate their fiduciary duty to the company.

Business Judgment Rule

With such a large potential shareholder liability the law has created a protective shield for corporate managers called the business judgment rule. In common law, the rule of business judgment presupposes that a director made a (1 ) business decision, (2) with due care, (3) in good conscience, (4) without a conflict of interest. A plaintiff must demonstrate that one of the four elements is missing to overcome a presumption that the director was acting in accordance with his fiduciary duties. Otherwise, the courts generally defer to the director's or board of directors' decision and will not hold them liable for a poor business decision.