Iowa law gives corporate directors several important duties. A director who violates these duties may be held personally responsible for any resulting damages. Although the law relating to corporate duties is complex, the basic fundamental duties are described as the duty of care and the duty of loyalty.
The duty of care: At its core, a director’s duty of care requires them make informed business decisions that they reasonably believe to be appropriate under the circumstances. This does not mean that directors must always make the “right” or best choice, but that their decisions meet a standard of care that upholds the corporation’s best interest. For a small, closely held corporation, it is likely that the directors are consistently engaged in the corporation’s business operations. The larger the corporation, the more likely it is that the directors may be removed from the day-to-day business, and have a heightened duty to inform themselves in order to make prudent decisions. Some tools that can be helpful in meeting the duty of care standard is keeping current information and reporting systems so that senior directors can use timely and accurate information while making decisions.
The duty of loyalty: The duty of loyalty requires that corporate directors act in the best interest of the corporation in all matters that affect the corporation’s well-being. This duty includes refraining from misappropriating assets, engaging in transactions that conflict with the corporation’s interests, competing with the corporation, or taking a corporate business opportunity without the corporation’s consent. Under this duty, a director must refrain from any conduct or decisions that puts self-interest above the interest of the corporation.
The attorneys at Simpson, Jensen, Abels, Fisher & Bouslog, P.C. are experienced in handling complex business issues. Contact us at (515) 288-5000 to discuss your corporate duties.
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