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What duties do directors and officers owe to a corporation?

Many Detroit residents have a number of close relationships with others, whether it be in a marriage, relationships with family and friends or in the business world. These relationships are important to all involved, and they can raise serious legal issues as well when the relationship goes awry.

A good example of this is business litigation that results from a breach of fiduciary duty. There are a number of individuals within the corporation who may owe fiduciary duties to the company, including officers, directors and controlling shareholders. Often times, state law defines the classes of individuals who owe fiduciary duties to the corporation.

State law also defines what duties are owed, which can be confusing at times. For instance, many states impose a duty of care and a duty of loyalty. In general, the duty of care means the director or officer must perform his or her duties to the company in good faith and with ordinary care that other prudent people would exercise in the best interests of the corporation. This does not mean the director or officer will be liable simply because he or she made a bad business judgment.

The duty of loyalty, on the other hand, may encompass a number of aspects like avoiding conflicts of interests and putting the interests of the company first. Thus, if a director has an interest in a separate company, and makes a sale or other transaction involving this separate company and the corporation, there could be issues arising with the director's duty of loyalty.

Ultimately, each case involving an alleged breach of fiduciary duty will turn on its own facts. The starting place in these cases, however, is to define what duties may be implicated by those facts and how those duties defined under state law will apply. Readers should not interpret this post as legal advice, and instead may want to turn to an attorney to answer any questions they may have about fiduciary duties.

Source: American Bar Association, "Breach of Fiduciary Duties," Robert Kutcher, Accessed July 11, 2015

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