Duty of care (business associations)
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- For the English law, see duty of care in English law. For Duty of care in the Tort context, see Duty of care.
In United States corporation and business association law (particularly Delaware law and the Revised Model Business Corporation Act), a duty of care is part of the fiduciary duty owed to a corporation by its directors. The other aspects of fiduciary duty are a director's Duty of Loyalty and (possibly) duty of good faith.
Directors' decisions are typically protected under the business judgment rule, unless they breach one of these duties or unless the decision constitutes waste. A breach of fiduciary duty will typically remove a director's decision from business judgment protection and require that the director show entire fairness.
[edit] Case Law
The duty of care has been set out or clarified in a number of decisions. Among the important duty of care cases are:
Smith v. Van Gorkom (setting out duty to be reasonably informed in decision-making).
Caremark (setting out duty of supervision and knowledge of company finances).
[edit] Statutes
The Duty of Care is set out in the Model Business Corporation act sections 8.30 and 8.31. There is no statutory codification of the Duty of Care in the Delaware General Corporation Law.
[edit] Exculpation
Both Delaware and the Model Act allow for directors to be exculpated for some breaches of the duty of care. The exculpation provisions are found in Delaware General Corporate Law secion 102(b)(7) and in Model Act section 2.02(b)(4).
