To impose liability on directors for payment, or on shareholders for receipt of illegal distributions from Texas corporations, the remedies now are exclusively contained in statuory. If the duty of due care is breached, the directors and/or officers are liable to the corporation for any loss it may have suffered as a result of their neglect. A creditor who sues solely on his own behalf cannot maintain a personal action against directors who, by negligent mismanagement of the corporation’s affairs, have breached their duties to the corporation to the consequent damage or injury of the creditor.īy statute, Texas has eliminated the "trust fund" theory, which was an equitable doctrine that allowed holders of pre-dissolution claims against a dissolved corporation to trace the assets that were distributed by the corporation to its shareholders and to recover those assets to the extent of the claims. Thus, the director may be brought to task by a receiver or trustee in bankruptcy of the corporation or (a shareholder bringing a derivative action to recover for the loss suffered by the corporation. As a result, the directors liability may be enforced only by any person who is seeking to assert the claim on behalf of the corporation, rather than as his own individual claim.
The directors' liability for mismanagement ordinarily runs to the corporation, not to third party creditors. Recovery for Board of Directors' Breach of Fiduciary Duty of Care As a general rule, a director may be liable to the corporation, and occasionally to its shareholders, creditors, or other persons, for losses caused by his failure to exercise the proper care.A director breaches his duty if (i) he commits overt acts constituting mismanagement or (ii) his inaction amounts to a failure to direct. In determining whether the standard has been met, courts may consider such factors as (a) the character of the corporation (b) the condition of its business (c) the usual method in which such corporations are managed and (d) any and all relevant facts that tend to throw fight upon the question of the proper discharge of one's duty as director. Texas requires a director to exercise his unbiased or honest judgment in pursuit of corporate interests with undivided loyalty and in utmost good faith. The fiduciary duty is to exercise same care as prudent man usually exercises in the management of his own affairs. Corporate officers and directors must use their uncorrupted business judgment for the sole benefit of the corporation.
The board of directors of a corporation have a fiduciary duty to exercise the same due care in the management of the corporation’s business as a prudent man would exercise under similar circumstances. The fiduciary duty of both officers and directors requires that they exercise the powers of their offices solely for the benefit of the corporation and its stockholders collectively.īoard of Directors' Fiduciary Duty of Due Care The standard to which officers are held may vary from the stringent obligations of a managing officer, who may have the same fiduciary obligations as a director, to those based simply on the principles of agency in the case of the subordinate officer. The board of directors' fiduciary duty includes the duty to exercise care in the management of corporate affairs, the duty of obedience, and the duty of loyalty to the corporation. Officers, directors, and controlling shareholders owe fiduciary duties of utmost good faith, scrupulous honesty, and loyalty to the corporation and to its shareholders collectively. These duties are creatures of state common law. The fiduciary duty on the board of directors and on corporate officers arises from their legal relationship with the corporation, which is fiduciary in nature. Fiduciary Duties of Officers and the Board of Directors
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