Important Things to Know when Serving on a Board of Directors

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Serving on the board of directors for a company is usually filled with responsibility, tasks and decisions to make with the other board members. This means it is vital to know everything possible about the position, what it takes to remain on the board and how to grow personally and financially in the position.

There are several responsibilities and duties that a member of a board of directors has when in the group. He or she is obligated in upholding certain aspects of the business such as the articles of incorporation, the bylaws and standards that are set by statutes of the state. As long as these persons fulfill their obligations and duties, they may be protected from personal liability issues that may negative affect them to include decisions carried out with their approval. The three broad duties include the duty of good faith, care and loyalty. These apply to the company and those hired within. This means that managers, officers, employees and third-party vendors are involved in these matters.

Directors that serve on a board for a business are not to be held personally responsible or liable for decisions make as a business person or for the company. This usually includes monetary damages, conduct that does not fall within the purview of the three duties and certain similar concerns. With the freedom of liability, board of directorsí members are able to fully commit to the company as long as they continue to keep with the three duties. This means that they are given the ability to make decisions for the better of the company with few limitations. However, it is important to completely understand the three duties to prevent any violations.

To Act in Good Faith

One of the three vital duties that a board of directors must adhere to is to act in good faith. This also means to deal fairly with the business, with employees and clients. The usual standard of care applies, but there is a greater meaning behind this for members that serve on the board. These persons are held to much higher standards than anyone else within the company. For some, this duty of good faith means ensuring that insured persons are provided settlement offers, that great care is provided for handling the claims and assisting in investigations. Additionally, these persons must act reasonably when making decisions, researching alternatives and investigating matters for the company.

The Duty of Care Explained

When making decisions for the company, law enforcement and the legal world expect for board members to exercise reasonable and a fair amount of care. For these individuals, this means that they must act with reasonable prudence, ensure restraint when the matter affects others and strategically plan certain aspects and courses of action for the business. The obligations of the corporation must be met, and internal decisions affect procedures as well as other processes within the organization. They are also needed to evaluate source material and information, assist in conclusions to investigations and other concerns. The performance of the company is to be monitored along with maintaining appropriate records.

The Duty of Loyalty Explained

Obligations of the duty of loyalty are usually intuitive. These include the unwavering and undivided loyalty that should be possessed by board members to ensure the corporation thrives. This would then lead to decisions made in the best interests of the company. This duty is to the entire company without regard to specific individuals. So, a decision may be executed that removes the power from an entire department, a manager or through changing the path of revenue to another pursuit. Violations occur when the board members thinks of himself or herself through conflicts of interest, matters of self-dealing and when other decisions are made that do not directly support the company. Because of such violations where conflicts of interest occur, it is crucial that the bylaws and articles of incorporation explain how to deal with these situations.

Violations of Duties and Legal Support

When a board of directorsí member violates one of the three obligatory duties, he or she may be facing severe consequences. It is possible to remove the individual, fire him or her from the company and for criminal or civil charges to be issued based on the violation and how it affects the company. For issues of violations or when the duties are directly negated, a lawyer should be hired. Legal representation may provide the best route to take for these incidents.


Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.

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