The shareholders elect the directors to seek their best interest. The directors represent the shareholders as agents and make various corporate decisions on behalf of them. As fiduciaries, directors and officers owe legal duty to the corporation and shareholder for trust and confidence. The directors cannot exercise their power and act in ways that benefit their own interests but has to seek the interests of the shareholders and the corporation. The fiduciary duty includes the duty of care and duty of loyalty.
In the general rule, directors should have well understanding of the business of the corporation. Directors are expected to act in good faith and act in the best interest of the corporation. Directors should become familiar with the fundamentals of the business that the corporation is engaged. Directors’ management is general monitoring of corporation affairs and policies but does not required of detail inspections. However, directors are under a continuing obligation to keep informed about the activities of the corporation such as reviewing financial statements. Directors and officers who do not exercise the required duty of care can be liable for the harms suffered by corporation as a result of their negligence.
The duty of loyalty requires directors and officers to subordinate their personal interests to benefits of corporation. Directors may not use corporate funds or confidential corporate information for personal usage. Directors should not oppose a transaction that is in the corporation’s interest because it may not for director’s interest or position. To protect a lack of due care default, the directors and officers is covered by liability insurance. Typically D&O policy has two separate insurance agreements for the corporate reimbursement which insures corporation and personal coverage for directors and officers against losses for wrongful conduct for corporation loss.
