Fiduciary Duties are owed by each Director to the Company and its stockholders. Fiduciary duties are owed to all stockholders irrespective of equity interest, and the risks associated with breach of fiduciary duties increase as the Company grows and brings on new investors. All directors and officers have an obligation to act in the best interests of the business, sometimes to the exclusion of their own interests.
The fiduciary duties of Directors are encompassed by two broad categories: (1) duty of care and (2) duty of loyalty. Below is a brief summary of the standards that directors must observe in their capacities as corporate fiduciaries or risk liability for breach:
Duty of Care. Directors must be diligent and invest significant amounts of time and energy in monitoring management’s conduct of the business and compliance with the Company’s Charter, Bylaws, applicable laws and operating and administrative procedures. In doing so, directors are entitled to rely on reports, opinions, information, and statements of the Company’s officers, legal counsel, accountants and employees, subject to reasonable circumstances (i.e., directors are responsible for remaining informed and making further inquiry when alerted by the circumstances).
Duty of Loyalty. Directors are required to exercise their powers in the interests of the Company and must not use their corporate position to enjoy a personal benefit, gain, or other advantage at the expense of the Company. Directors must also act in good faith, disclose to stockholders all material facts relevant to a stockholder decision, deal with all matters involving the Company in confidence, and maintain the Company’s confidential information. If conflicts of interest arise, the “interested” director should (1) seek approval from disinterested directors or stockholders, (2) disclose such interest and all relevant material facts, (3) abstain from voting on the matter and (4) avoid being present while the disinterested directors or stockholders discuss and vote.