Obligations of Directors and Officers

Abstract

The management structure of corporations -- be they C, S or LLC -- is dictated by state law. Almost every state has modeled their corporate laws after the Model Business Corp Act written by the American Bar Association in 1946, and the Revised Model Business Corporation Act of 1984. The structure is a pyramid, with shareholders at the base. Directors, as the shareholders' elected representatives, are delegated the power to manage the business of the corporation. The directors and officers of the corporation owe certain duties to the company and shareholders. Their duties are: 1. obedience, 2. loyalty, 3. diligence, 4. conflicts of interest, 5. duty not to compete, and 6. good faith. So long as directors and officers have selected employees with care and provided a reasonable amount of supervision, no personal liability will arise to them personally from negligent acts or willful wrongs of their appointees.