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Introduction to the Law of Corporations: Cases and Materials

Standards of Conduct and Standards of Review

Directors of corporations owe fiduciary duties of care and loyalty to the corporation and its residual claimants (stockholders). The duty of care generally requires a director to use the care that a reasonably prudent person in like position would reasonably believe appropriate under the circumstances. The duty of loyalty generally requires a director to discharge her duties in good faith and with the reasonable belief that her actions are in the best interests of the corporation and the residual claimants.

When a court is asked to judge director actions against the obligations the directors owe, the court deploys one of several standards of review depending on the circumstances and the duty being questioned.  The excerpt from In re Trados S'holder Litigation provides a broad overview of how courts approach the question of evaluating director conduct against the appropriate standard of review.