Each member of a corporation’s board of directors owes a fiduciary duty to the corporation and its shareholders. That duty fundamentally has two obligations: the duty of care (directors must perform their jobs diligently and competently) and the duty of loyalty (directors cannot use their positions of trust to further the private interests of any third party – including themselves). Under both these duties, but especially the duty of loyalty, the interests of the corporation and its shareholders must always come first.

As part of the duty of loyalty, directors and officers (as well as controlling shareholders) are required to act with “inherent fairness” to the corporation. That especially relates to any contracts that the board is called upon to approve. It can sometimes be the case that contracts would be between the corporation and one or more individual board members. Any such contract must be fully disclosed and approved by a majority of board members who are not themselves contracting with the corporation. If approval is not given in this way, the contract may be considered void.

LOADING PDF: If there are any problems, click here to download the file.

Written by:

Published In:

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Robert M. Heller, A Professional Law Corporation | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.