SURGE: Specific Benefit Corporations Fiduciary Duties Workshop

Specific Benefit Corporations Fiduciary Duties Workshop Kim Lowe Matt Norris

March 16, 2015

Fiduciary Duties for SBCs

© 2015 Fredrikson & Byron, P.A. 2

Duty of Care Duty of Loyalty Duty of Candor

SBC Standard of Conduct

Apply To: Officers Directors

Duty of Care


“The care an ordinarily prudent person in a like position would exercise under similar circumstances.”

Perfect Decisions

Decision Making Process

Importance of Decision

Minimum Requirements for Directors Attend meetings

Stay informed of company’s

business affairs

Engage in active discussion

Consider all relevant factors

Duty of Care, cont.


“Red Flags”

• You don’t have to seek out wrongdoers, but can’t turn blind eye

• You have a duty to investigate if sufficient “red flags” raised

• You should follow up until reasonably satisfied situation is being handled appropriately

Reliance on Others

• You may reasonably rely upon outsiders

• You are not responsible if information later turns out to be wrong

• You have a duty to investigate only if info raises specific “red flags” that warrant further inquiry

Duty of Loyalty


Directors and officers must put the company’s interest first!

Be on the lookout for Conflicts between personal interests

and company’s interest Conflicts through a relative Conflicts through a business entity

How to handle conflicts Disclose all relevant information

related to a personal interest Remove conflicted director or officer

from the discussion and any vote Majority of disinterested directors

must approve Consider forming special committee

Duty of Loyalty, cont.


Business Opportunities Must disclose opportunities you

become aware of that relate to the company’s business

Disinterested directors must vote on whether company should pursue opportunity If Yes: You cannot pursue the

opportunity If No: You may pursue the

opportunity

Confidentiality Must keep company information

confidential

Disclosing non-public information, even to friends or relatives, can result in civil liability

Duty of Candor


You must disclose all material info

You and company may never mislead or misinform shareholders, directors, or officers

You must provide accurate and up-to-date information

Pecuniary interest of shareholders

Company’s specific public benefit purpose

Standard of Conduct for SBCs


Must Consider May Consider

Cannot

Employees Customers Suppliers Creditors Economy of the state and nation Community

always give priority to any particular interest or consideration unless specified in articles

Breach of Standard of Conduct Enforcement


• Only shareholders can enforce Who

• Breach standard of conduct (1) to substantial extent and (2) in sustained manner

• Failure to pursue specific public benefit purpose for unreasonably long period of time

When

• Court has wide discretion • Includes termination of PBC status, removal of directors, and

liquidation of company Remedy

• Special provision in articles of incorporation • Can’t claim violation of duty of loyalty if decision that complies

with standard of conduct does not result in specific public benefit

Added Protection

Special Circumstances


Time To Call Your Attorney:

Sale of the company

Insolvency

Winding down the business

Pecuniary interest of shareholders

Company’s specific public benefit purpose

Recap


Duty of Care Duty of Loyalty Duty of Candor

SBC Standard of Conduct

1

Perfect Decisions

Decision Making Process

Importance of Decision

2 3

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SURGE: Specific Benefit Corporations Fiduciary Duties Workshop

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Transcript of SURGE: Specific Benefit Corporations Fiduciary Duties Workshop