Do You Owe a Duty of Care to Investors in Your Business?
Many California business owners owe duties of care to their investors under California law. Generally, the duty of care requires business owners to act in good faith and in the best interests of the business. It is one of several fiduciary duties, along with the duty of loyalty and others. Whether the duty of care applies and to whom it applies depends on the type of business entity.
In corporations, officers and directors must obey the duty of care by performing their duties “in good faith, in a manner such director believes to be in the best interests of the corporation and its shareholders and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.” California Corporations Code § 309(a). This code section’s language ties directors’ and officers’ actions to the best interests of the shareholders. California courts have been occupied deciding whether directors did take care and conduct reasonable inquiries for many years. In many instances where directors’ conduct does not rise to the level of recklessness, directors are protected from personal liability for actions that violate the duty of care.
In partnerships, the duty of care’s scope differs substantially from its scope in corporations. Partners merely must “
Forward-thinking businesses seek out legal advice before problems arise. Protect yourself and your business by seeking out an experienced business attorney to help you interpret your duties to investors. Michael Leonard, Esq., of San Diego Corporate Law, named a “Rising Star” for 2017 by SuperLawyers, has years of experience with California securities laws. To schedule a consultation, e-mail San Diego Corporate Lawor call Mr. Leonard at (858) 483-9200.