Corporations are run, in large part, by Officers and the Board of Directors. Individual Directors make up the Board of Directors. A vast amount of decision making related to the everyday affairs of a corporation is done by Officers and Directors.
Corporations are businesses. Businesses can have many owners. A corporation is a non-living, non-breathing entity that cannot think and make decisions on its own. Yet the decisions that are made about the corporation must be done with the corporation’s best interests in mind.
Individual Officers and Directors run a corporation, but they are not the corporation and often have different interests. There must be some control and oversight over the actions of Officers and Directors, to ensure they act in accordance with the corporation’s best interests.
Oversight of a Corporation’s Officers and Directors
Minnesota statutes provide the necessary control and oversight by setting for the standards for the conduct of Officers and Directors. Officers and Directors must act honestly, in good faith, and with the best interests of the corporation as their goal. They must act reasonably in light of the situation.
The Law Establishes the Duties of Officers and Directors
These requirements of Officers and Directors in Minnesota statutes are often referred to as an Officer or Director’s Duty of Loyalty and Duty of Care.
Officers and Directors who act in accordance with these duties will not be liable for their decisions. Officers and Directors who do not act in accordance with these duties will be liable for their decisions and actions.
The Duty of Loyalty
The Duty of Loyalty requires Officers and Directors to be honest with the corporation’s shareholders. It requires Officers and Directors to perform their corporate duties in good faith. This is similar to acting honestly and with good intentions.
The Duty of Loyalty also requires Officers and Directors to disclose certain information. Officers and Directors in closely-held corporations are also required by Minnesota laws to provide certain important information. Officers and Directors who have a financial interest in an action by the corporation must disclose their individual financial interest.
Officers and Directors who violate their fiduciary duties do so more often by concealing this information than any other type of violation.
The Duty of Care
Officers and Directors are not to put their own interests before those of the corporation. The Duty of Care provides that Officers and Directors must act in the manner they believe to be in the best interest of the corporation.
Officers and Directors will make mistakes, but if they are acting in good faith and honestly, in the manner they believe to be in the best interest of the corporation, they will not be held liable for those mistakes.
The fiduciary duty of care requires Officers and Directors to act in the best interests of the corporation. It does not necessarily require that officers and directors’ judgments be sound. Mistakes are the cost of doing business. Honest mistakes are permissible. Self-motivated actions and self-dealing are not.
Courts are reluctant to get involved in the business judgments of corporations’ Officers and Directors, but do require that they act with the intention of satisfying the goals and best interests of the corporation.