Under Maine law, corporate officers and directors bear fiduciary duties to the corporations they serve. Fiduciary duties exist because of the high level of trust placed in a person in a fiduciary capacity. As U.S. Supreme Court Justice Cardozo explained in 1928 in Meinhard v. Salmon:
A trustee is held to something stricter than the morals of the marketplace. Not honesty alone, but the punctilio [or exactness] of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate [or firmly established] (emphasis added).
Maine has embraced this “unbending and inveterate” tradition of honorable behavior for both directors and officers.
- 1. What are my duties and responsibilities as a director?
- General Fiduciary Duties. As a director, you must act:
- in good faith;
- in a manner you reasonably believe to be in the best interest of the corporation; and
- with the care that a person in a similar position would reasonably believe appropriate under similar circumstances.
- Use Your Business Judgment. Courts will not second guess the wisdom of your business decision if that decision was honestly reached.
- Disclose Material Information. Disclose all information that is material to the discharge of the board’s decision making and oversight functions unless you reasonably believe that doing so would violate: (1) a duty imposed under law; (2) a legally enforceable obligation of confidentiality; or (3) a professional ethics rule.
- Consider Other Factors. When making decisions regarding the best interest of the corporation and its shareholders, you can also consider the effects of any action upon employees, suppliers and customers of the corporation, communities in which offices or other establishments of the corporation are located and all other pertinent factors.
- Rely on Others with Confidence. Unless you believe or know that your reliance is unwarranted, you can rely on the performance, information and reports prepared or presented by: (1) a board committee; (2) officers and employees; or (3) people possessing particular professional or expert knowledge, such as legal counsel and accountants. You can delegate certain board functions to a board committee, officer or employee.
- 2. What are my potential liabilities as a director?
- Action and Inaction. You may be liable to the corporation or its shareholders based upon:
- receiving a financial benefit to which you are not entitled;
- an intentional infliction of harm on the corporation or its shareholders;
- approving unlawful distributions (or dividends);
- an intentional violation of criminal law;
- engaging in a conflicting interest transaction (see below for definition);
- taking a business opportunity from the corporation (see below for definition);
- action not taken in good faith;
- making a decision you did not reasonably believe to be in the best interest of the corporation;
- making a decision to which you were not reasonably informed;
- a lack of objectivity due to your familial, financial or business relationships;
- a lack of independent judgment;
- a sustained failure to devote timely attention to facts and circumstances of significant concern; or
- any other breach of your duties to deal fairly with the corporation and its shareholders.
- Conflicting Interest Transaction Defined. A conflicting interest transaction is a transaction: (1) to which you are a party; (2) in which you have a material financial interest; or (3) in which a person related to you or a business entity affiliated with you is a party or has a material financial interest.
- Business Opportunity Defined. A business opportunity is an opportunity that may be even remotely related to the corporation’s business.
- 3. What are my duties and responsibilities as an officer?
An officer’s duties and responsibilities are substantially the same as a director’s.
- 4. What are my potential liabilities as an officer?
An officer’s potential liabilities are substantially the same as a director’s. Officers can also be held personally liable for committing an unfair trade practice within the scope of their employment.
- 5. Will the corporation indemnify directors or officers?
- Permissible Indemnification. A director or officer may be indemnified if certain criteria in the articles of incorporation, bylaws or the Maine Business Corporation Act are met. An officer may be indemnified to a greater extent than a director.
- Mandatory Indemnification. A director or officer who was wholly successful in the defense of any legal proceeding must be indemnified by the corporation.
- 6. Will the corporation carry insurance to protect directors and officers?
The corporation may purchase and maintain insurance on behalf of a director or officer, whether or not the corporation would have power to indemnify the individual against the same liability.
This information is provided as a general reference guide. For more information see the Maine Business Corporation Act, 13-C M.R.S. §§ 801-881. More detailed legal advice should be sought from competent legal counsel as particular situations arise.