Duty of Diligence and Due Care
Duty of Diligence and Due Care
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The Duty of Diligence and Due Care has been defined, generally, as a requirement that
each director and officers exercise the care which ordinarily prudent and
reasonable persons would exercise under the same circumstances. Defining it a
little less broadly, according to a Minnesota court the Duty of Care is a
requirement that a director act "with the care an ordinarily prudent
person in a like position would exercise under similar circumstances."
This duty precludes a director from delegating his authority or decision-making
responsibility to another director. Unlike shareholders, a director cannot use a
proxy to appoint any other person to vote for him at Board
meetings.
According to Delaware court rulings, the Duty of Diligence and Due Care requires that the directors "inform themselves, prior to making a business decision, of all material information reasonably available to them" and to "act with requisite care in the discharge of their duties." In one of the few instances wherein a court found a breach of this duty, in 1985, the Delaware Supreme Court ruled that approving a merger without waiting to receive information necessary to make an informed decision constituted a breach by the directors of this duty. See Business Judgment Rule.
Disclaimer: The foregoing is intended to provide general information and may not be suitable in specific instances. The glossary information is not intended to be exhaustive, but rather to illustrate typical considerations. The material is provided with the understanding that it is not legal, accounting, tax or any other professional advice.
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Important LawVantage.com, LLC and its website, CorporateBoardMinutes.com, do not render any legal, accounting or other consulting advice.
For legal advice, you should always consult with a qualified attorney-at-law.
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According to Delaware court rulings, the Duty of Diligence and Due Care requires that the directors "inform themselves, prior to making a business decision, of all material information reasonably available to them" and to "act with requisite care in the discharge of their duties." In one of the few instances wherein a court found a breach of this duty, in 1985, the Delaware Supreme Court ruled that approving a merger without waiting to receive information necessary to make an informed decision constituted a breach by the directors of this duty. See Business Judgment Rule.
Disclaimer: The foregoing is intended to provide general information and may not be suitable in specific instances. The glossary information is not intended to be exhaustive, but rather to illustrate typical considerations. The material is provided with the understanding that it is not legal, accounting, tax or any other professional advice.
Copyright © 2003-2010 LawVantage.com, LLC. All rights reserved.
Important LawVantage.com, LLC and its website, CorporateBoardMinutes.com, do not render any legal, accounting or other consulting advice.
For legal advice, you should always consult with a qualified attorney-at-law.
Website development by
Vine Design.