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Board of Director Responsibilities

Board of Director Responsibilities

September 26, 2018

By Johnson/Turner Legal

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Business require many active participants and hard-workers to make the operations run smoothly. Corporations are no exception. In a corporation, there are several different types of people who help make decisions and run the business. The “Board of Directors” is a term we are all familiar with, but especially if you are running a business or thinking of forming a corporation of your own, it is important for you to understand the role of the board of directors in your business.

The board of directors is essentially responsible for helping making governing decisions for the business. Unlike managers who are responsible for the day-to-day running of the business, the board of directors do not get involved in the daily affairs of the corporation. Instead, the board will be asked to make decisions that the management is expected to carry out. The distinction between the two roles is never absolute, and it is important the responsibilities of the board is clearly spelled out in the corporation’s documents in order to allow each group to know its responsibilities.

Members of the board of directors also have a duty of care, a duty of good faith, and a duty of loyalty imposed upon them by Minnesota state law. Minnesota statute § 302A.51 provides that a board of director has a duty of care, which means that he or she must make decisions for the business only after having sufficient information. The duty of loyalty means that the board of director member must make behave in an honest way and make decisions that he or she believes is in the business’s best interest. For example, he or she is prohibited from using the business assets as leverage to obtain monetary gain for the board of director member or his family personally. Under the duty of care, the board of director member needs to consider the interests of the corporation, its employees, its shareholders, and the long and short-term issues involved in decisions. If the director breaches any of these duties, he or she may be held personally liable for any damages to the corporation. Typically if the board of director member acts reasonably and within the bounds of reasonable business judgment, then he or she will be judged to have acted in such a way that does not breach his or her duties, even if the decision resulted in damage to the corporation.

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