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Fiduciary Duties Flashcards

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1
Q

Is Duty of Care procedural or substantive?

A

Procedural

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2
Q

What is the first prong under Duty of Care?

A

Intentional or knowing violation of law = liability

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3
Q

What is the second prong under Duty of Care?

A

Gross Negligence

Unintelligent/ unadvised

Exculpation Clause?

If there is not an Exculpation Clause = Liability

If there is an Exculpation Clause = NO liability

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4
Q

What is the third prong under Duty of Care?

A

Good Faith
Independent
Reasonably Informed
Best Interests of the Corporation

Business Judgment Rule

NO liability!

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5
Q

__________ have the power to sell, vote, and sue. We are in the sue category when discussing breach of fiduciary duty.

A

Shareholders

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6
Q

Shareholders have the power to ______, ______, and ______. We are in the ______ category when discussing breach of fiduciary duty.

A

sell
vote
sue

sue

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7
Q

Shareholders have the power to sell, vote, and sue. We are in the sue category when discussing _______ ____ _____ _____.

A

breach of fiduciary duty

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8
Q

Under the _______, each director/officer, when discharging their duties as director/officer, is required to act in good faith and in a manner the director/officer reasonably believes to be in the best interest of the corporation

A

MBCA

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9
Q

Under the MBCA, each _________________, when discharging their duties as __________________, is required to act in good faith and in a manner the director/officer reasonably believes to be in the best interest of the corporation

A

director/officer
director/officer

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10
Q

Under the MBCA, each director/officer, when discharging their duties as director/officer, is required to act in ______ _______ and in a manner the director/officer reasonably believes to be in the best interest of the corporation

A

good faith

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11
Q

Under the MBCA, each director/officer, when discharging their duties as director/officer, is required to act in good faith and in a manner the director/officer _______ ________ to be in the best interest of the corporation

A

reasonably believes

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12
Q

Under the MBCA, each director/officer, when discharging their duties as director/officer, is required to act in good faith and in a manner the director/officer reasonably believes to be in _______________________________________.

A

the best interest of the corporation.

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13
Q

Under the MBCA, each director/officer, when discharging their duties as director/officer, is required to act in good faith and in a manner the director/officer reasonably believes to be in the best interest of the corporation. See MBCA § 8.30(a).

More specifically, the directors/officers must be _________ regarding the decisions they make and in exercising oversight of the corporation. See MBCA § 8.30(b)(1).

A

informed

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14
Q

Under the MBCA, each director/officer, when discharging their duties as director/officer, is required to act in good faith and in a manner the director/officer reasonably believes to be in the best interest of the corporation. See MBCA § 8.30(a).

More specifically, the directors/officers must be informed regarding the _________ they make and in exercising ___________ of the corporation. See MBCA § 8.30(b)(1).

A

decisions

oversight

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15
Q

Under the MBCA, each director/officer, when discharging their duties as director/officer, is required to act in good faith and in a manner the director/officer reasonably believes to be in the best interest of the corporation. See MBCA § 8.30(a).

More specifically, the directors/officers must be informed regarding the decisions they make and in exercising oversight of the corporation. See MBCA § 8.30(b)(1).

Additionally, directors/officers have a duty to _________ to the other directors/officers any information that they have that would be material to the other directors’ discharge of their decision-making and oversight functions. MBCA § 8.30(b)(2).

A

disclose

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16
Q

Under _________ ______, each director/officer owes the corporation and the shareholders a duty of care and a duty of loyalty.

A

Delaware law

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17
Q

Under Delaware law, each _______________ owes the corporation and the shareholders a duty of care and a duty of loyalty.

A

director/officer

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18
Q

Under Delaware law, each director/officer owes the __________ and the __________ a duty of care and a duty of loyalty.

A

corporation

shareholders

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19
Q

Under Delaware law, each director/officer owes the corporation and the shareholders a ______ ___ _____ and ______ ____ _____.

A

duty of care

duty of loyalty

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20
Q

Under Delaware law, each director/officer owes the corporation and the shareholders a duty of care and a duty of loyalty.

The DGCL does not expressly create a directors’ duties because it almost assumes that ______ ________ just exists [common law] so you must look to case law for the basis and nature of fiduciary duty.

A

fiduciary duty

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21
Q

Under Delaware law, each director/officer owes the corporation and the shareholders a duty of care and a duty of loyalty. The DGCL does not expressly create a directors’ duties because it almost assumes that fiduciary duty just exists [common law] so you must look to _____ _______ for the basis and nature of fiduciary duty.

A

case law

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22
Q

How many steps are there to analyzing a breach of fiduciary duty issue?

A

2

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23
Q

There are two overall steps to analyzing a breach of fiduciary duty issue. The first step is to establish that the _______ or __________ was not excluded by statute, the charter, or the bylaws. These are known as exculpatory clauses.

A

action or inaction

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24
Q

There are two overall steps to analyzing a breach of fiduciary duty issue. The first step is to establish that the action or inaction was _____ ________ by statute, the charter, or the bylaws. These are known as exculpatory clauses.

A

not excused

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25
There are two overall steps to analyzing a breach of fiduciary duty issue. The first step is to establish that the action or inaction was not excused by _________, the _______, or the ________ These are known as exculpatory clauses.
statute charter bylaws
26
There are two overall steps to analyzing a breach of fiduciary duty issue. The first step is to establish that the action or inaction was not excused by statute, the charter, or the bylaws. These are known as _________ _______.
exculpatory clauses
27
Under DGCL § 102(b)(7) The ________ _____ ___________ may include a provision eliminating or limiting the personal liability of a director or officer to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director or officer, provided that such provision shall not eliminate or limit the liability of (i) A director or officer for any breach of the director’s or officer’s duty of loyalty to the corporation or its stockholders; (ii) A director or officer for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or (iv) A director or officer for any transaction from which the director or officer derived an improper personal benefit.
Certificate of Incorporation
28
Under DGCL § 102(b)(7) The Certificate of Incorporation _____ _______ a provision eliminating or limiting the personal liability of a director or officer to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director or officer, provided that such provision shall not eliminate or limit the liability of (i) A director or officer for any breach of the director’s or officer’s duty of loyalty to the corporation or its stockholders; (ii) A director or officer for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or (iv) A director or officer for any transaction from which the director or officer derived an improper personal benefit.
may include
29
Under DGCL § 102(b)(7) The Certificate of Incorporation may include ___ __________ eliminating or limiting the personal liability of a director or officer to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director or officer, provided that such provision shall not eliminate or limit the liability of (i) A director or officer for any breach of the director’s or officer’s duty of loyalty to the corporation or its stockholders; (ii) A director or officer for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or (iv) A director or officer for any transaction from which the director or officer derived an improper personal benefit.
a provision
30
Under DGCL § 102(b)(7) The Certificate of Incorporation may include a provision__________ or _______ the personal liability of a director or officer to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director or officer, provided that such provision shall not eliminate or limit the liability of (i) A director or officer for any breach of the director’s or officer’s duty of loyalty to the corporation or its stockholders; (ii) A director or officer for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or (iv) A director or officer for any transaction from which the director or officer derived an improper personal benefit.
eliminating or limiting
31
Under DGCL § 102(b)(7) The Certificate of Incorporation may include a provision eliminating or limiting the _________ _________ of a director or officer to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director or officer, provided that such provision shall not eliminate or limit the liability of (i) A director or officer for any breach of the director’s or officer’s duty of loyalty to the corporation or its stockholders; (ii) A director or officer for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or (iv) A director or officer for any transaction from which the director or officer derived an improper personal benefit.
personal liability
32
Under DGCL § 102(b)(7) The Certificate of Incorporation may include a provision eliminating or limiting the personal liability of a ________ or ________ to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director or officer, provided that such provision shall not eliminate or limit the liability of (i) A director or officer for any breach of the director’s or officer’s duty of loyalty to the corporation or its stockholders; (ii) A director or officer for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or (iv) A director or officer for any transaction from which the director or officer derived an improper personal benefit.
director or officer
33
Under DGCL § 102(b)(7) The Certificate of Incorporation may include a provision eliminating or limiting the personal liability of a director or officer to the __________ or its _________ for monetary damages for breach of fiduciary duty as a director or officer, provided that such provision shall not eliminate or limit the liability of (i) A director or officer for any breach of the director’s or officer’s duty of loyalty to the corporation or its stockholders; (ii) A director or officer for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or (iv) A director or officer for any transaction from which the director or officer derived an improper personal benefit.
corporation stockholders
34
Under DGCL § 102(b)(7) The Certificate of Incorporation may include a provision eliminating or limiting the personal liability of a director or officer to the corporation or its stockholders for ________ ________ for breach of fiduciary duty as a director or officer, provided that such provision shall not eliminate or limit the liability of (i) A director or officer for any breach of the director’s or officer’s duty of loyalty to the corporation or its stockholders; (ii) A director or officer for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or (iv) A director or officer for any transaction from which the director or officer derived an improper personal benefit.
monetary damages
35
Under DGCL § 102(b)(7) The Certificate of Incorporation may include a provision eliminating or limiting the personal liability of a director or officer to the corporation or its stockholders for monetary damages for breach of ________ ________ as a director or officer, provided that such provision shall not eliminate or limit the liability of (i) A director or officer for any breach of the director’s or officer’s duty of loyalty to the corporation or its stockholders; (ii) A director or officer for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or (iv) A director or officer for any transaction from which the director or officer derived an improper personal benefit.
fiduciary duty
36
Under DGCL § 102(b)(7) The Certificate of Incorporation may include a provision eliminating or limiting the personal liability of a director or officer to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director or officer, provided that such provision shall not eliminate or limit the liability of (i) A director or officer for any breach of the director’s or officer’s duty of loyalty to the corporation or its stockholders; (ii) A director or officer for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or (iv) A director or officer for any transaction from which the director or officer derived an improper personal benefit.
ADD
37
DGCL - how can you put exculpation clauses in:
Directors or Officers
38
Under _______ § 2.02(b)(4) The articles of incorporation may set forth a provision eliminating or limiting the liability of a director to the corporation or its shareholders for money damages for any action taken, or any failure to take any action, as a director, except liability for (i) the amount of a financial benefit received by a director to which the director is not entitled; (ii) an intentional infliction of harm on the corporation or the shareholders; (iii) a violation of section 8.32; or (iv) an intentional violation of criminal law.
MBCA
39
Under MBCA § 2.02(b)(4) The ______ ____ __________ may set forth a provision eliminating or limiting the liability of a director to the corporation or its shareholders for money damages for any action taken, or any failure to take any action, as a director, except liability for (i) the amount of a financial benefit received by a director to which the director is not entitled; (ii) an intentional infliction of harm on the corporation or the shareholders; (iii) a violation of section 8.32; or (iv) an intentional violation of criminal law.
articles of incorporation
40
Under MBCA § 2.02(b)(4) The articles of incorporation may set forth a provision eliminating or limiting the liability of a director to the corporation or its shareholders for money damages for any action taken, or any failure to take any action, as a director, except liability for (i) the amount of a financial benefit received by a director to which the director is not entitled; (ii) an intentional infliction of harm on the corporation or the shareholders; (iii) a violation of section 8.32; or (iv) an intentional violation of criminal law. !!
!!
41
MBCA - How can you put exculpation clauses in:
Directors
42
____ ________ who undertakes an action that places others at risk of injury is under a duty of care to act carefully and is liable for the failure to do so.
A person
43
A person _____ _________ an action that places others at risk of injury is under a duty of care to act carefully and is liable for the failure to do so.
who undertakes
44
A person who undertakes ___ _______ that places others at risk of injury is under a duty of care to act carefully and is liable for the failure to do so.
an action
45
A person who undertakes an action that ______ _______ at risk of injury is under a duty of care to act carefully and is liable for the failure to do so.
places others
46
A person who undertakes an action that places others at _____ ___ ______ is under a duty of care to act carefully and is liable for the failure to do so.
risk of injury
47
A person who undertakes an action that places others at risk of injury is under a _____ ___ _____ to act carefully and is liable for the failure to do so.
duty of care
48
A person who undertakes an action that places others at risk of injury is under a duty of care to ____ ________ and is liable for the failure to do so.
act carefully
49
A person who undertakes an action that places others at risk of injury is under a duty of care to act carefully and is _______ for the failure to do so.
liable
50
How many standards of review for the Duty of Care are there?
3
51
There are three standards or review for the Duty of Care that include 1. 2. 3.
1. Business Judgment Rule (Highly deferential) 2. Gross Negligence 3. Intentional/Knowing Violation of Law.
52
The Duty of Care is a _______ analysis.
procedural
53
The ______ ___ ____ will be breached when the directors act in a grossly negligent manner or engage in intentional or knowing violations of law.
Duty of Care
54
The Duty of Care will be breached when the _______ act in a grossly negligent manner or engage in intentional or knowing violations of law.
directors
55
The duty of care will be breached when the directors act in a _______ _______ manner or engage in ________ or _______ ________ ___ _______.
grossly negligent intentional knowing violations of law
56
_______ _______ is defined as an unintelligent or unadvised decision.
Grossly Negligent
57
Grossly Negligent is defined as an __________ or ___________ decision.
unintelligent or unadvised
58
Grossly Negligent is defined as an ____________ or ___________ decision.
unintelligent or unadvised
59
_______ _______ is when the decision was so bad that no rational person would have thought it was a good idea.
Gross Negligence
60
Gross Negligence is when the _______ was ____ _____ that no rational person would have thought it was a good idea.
decision so bad
61
Gross Negligence is when the decision was so bad that ___ ______ _____ would have thought it was a good idea.
no rational person
62
Gross Negligence is when the decision was so bad that no rational person ______ ______ ______ it was a good idea.
would have thought
63
Gross Negligence is when the decision was so bad that no rational person would have thought ___ ____ ____ ____ ____.
it was a good idea
64
If an _______ was grossly negligent then it is a violation of the duty of care.
action
65
If an action was _______ ______ then it is a violation of the duty of care.
grossly negligent
66
If an action was grossly negligent then it is a ________ of the ______ ___ ____.
violation duty of care
67
There is no ________ for directors who have made an unintelligent or unadvised judgment.
protection
68
If the action was not grossly negligent, the _____ _____ ______ kicks in and protects the decision from judicial scrutiny.
Business Judgment Rule
69
Thus, in the absence of facts showing self-dealing or improper motive, a corporate ________ or ________ is not legally responsible to the corporation for losses that may be suffered as a result of a decision that a officer made or that directors authorized in good faith.
officer or director
70

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