Understanding the Duties of a Corporate Director

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Understanding the Duties of a Corporate Director

Directors and officers of companies owe a duty to the ownership of those companies to act in their best interests. In other words, directors act as trustees to business owners, putting the companies’ interests ahead of their own personal interests. In this role, directors owe both a duty of loyalty to the owners — both majority and minority shareholders — and a fiduciary duty to exercise reasonable care in the oversight of a company’s affairs.

Directors’ Duties

The primary role of a board of directors is to protect shareholders’ assets and ensure a reasonable return on their investment in the company. This fiduciary duty requires directors to be well informed about the company’s operations and base their decision-making on the best interests of the company and its shareholders.

A board of directors’ duties are usually outlined in a company’s by-laws and typically involve establishing policies and goals; selecting corporate officers; providing operational, regulatory and legal oversight; securing sufficient funding for organizational operations; and being accountable to shareholders for the company’s financial performance.

Directors’ Powers

All of a corporation’s business affairs are under the oversight of its board of directors. A company’s officers typically manage daily operational decisions, but the directors are responsible for making certain major business decisions like employment and compensation policies, mergers and acquisitions, asset sales, and other matters that impact shareholders. Directors’ powers are limited to what is allowed in the corporation’s articles of incorporation and by-laws or issues that must be approved by shareholder vote.

Directors’ Liability

If any fiduciary duties are breached, this can lead to litigation, exposing officers and directors to personal liability. However, officers and directors are not liable if they acted reasonably and in good faith. In addition, a corporation’s by-laws or articles of incorporation may further indemnify directors from personal liability.

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