Directors and officers are individuals who exercise certain powers in the control and operation of a corporation; they also owe certain duties to the corporation. There are three basic duties that directors and officers owe a corporation: (1) the duty of care, to act reasonably in the corporation’s best interest and in good faith; (2) the duty of loyalty, placing the success of the corporation above one’s own; and (3) the duty of obedience, to act within the scope of applicable laws.
Directors and officers must be mindful of their duties as they are liable for any shortcomings on their part in terms of those duties, and company indemnity may not cover them adequately. For example, if a statute requires the directors or officers to maintain accurate financial records and those obligations are not fulfilled the directors and officers will be liable for not exercising their duty of obedience and following the law.
Directors and officers may also be personally liable for committing unlawful and tortious acts such as, among other things, fraud, negligence, and interference with economic relations.
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