Duties of a Director or Officer of NY Corporations

By Karen Canales-Reyes and Andreas Koutsoudakis

Corporate officers and directors of New York corporations generally have broad authority to act on behalf of the corporation; however, this discretion is not unlimited. Corporate officers and directors must act in accordance with their duties or face liability.

In New York, corporate directors and officers owe fiduciary duties to the corporation and its shareholders.  Among these duties are the duty of care and the duty of loyalty.

Duty of Care

Pursuant to New York law, corporate directors and officers owe a duty of good faith to the corporation and its shareholders, which means that directors and officers are expected to act with the degree of care that an ordinarily prudent person in a like position would use under similar circumstances in fulfilling their responsibilities as a member of the corporation’s board of directors.[1] The goal of this fiduciary duty is to require corporate officers and directors to act only after completing their due diligence and by relying on credible information.[2]

To assess whether a corporate officer or director comported with the duty of care, courts use the business judgment rule standard. The business judgment rule applies to decisions on judgments as to which the director or officer is independent and has exercised reasonable care in good faith. If it is found to apply, the business judgment rule means courts will give great deference to the conduct or actions of an officer or director and are likely to find such a decision or action to be fair to the corporation and shareholders.[3]  The action or decision will have a rebuttable presumption of being fair and appropriate where the business judgment rule applies.

Duty of Loyalty

As an officer or director of a corporation, you owe a duty of “undivided and unqualified loyalty to the corporation.”[4] The duty of loyalty prohibits corporate directors and officers from engaging in conduct that promotes self-interests or contravenes the interests of the corporation. As such, directors and officers cannot profit personally at the expense of the corporation and must not allow their private interests to conflict with those of the corporation. Some examples of a breach of loyalty can include disclosing corporate information to further personal profits, engaging in a competing venture, and usurping a corporate opportunity for personal gain.

Liability Associated with Duties

While the business judgment rule provides great deference to the conduct and actions of corporate officers and directors, it does not completely insulate individuals from liability. Specifically, corporate officers and directors may be personally liable for their conduct if a court finds they failed to comport with their duties. Notably, if a corporate officer or director acts outside the scope of their authority and commingles the interests of the corporation with their own, the court may find that the corporate veil was pierced, and they can be held personally liable.[5] Furthermore, a corporate director or officer is personally liable for the tortious acts they participate in, regardless of whether the officer acted on behalf of the corporation in the course of official duties, and regardless of whether the corporate veil is pierced.[6]

It is important to be wary of your duties as a director or officer of a corporation. Reach out to our knowledgeable corporate governance attorneys here at KI Legal to learn more about the fiduciary duties of directors or officers of New York corporations and how such duties can affect you.  

[1] NYBCL § 717(a)

[2] Hanson Tr. PLC v. ML SCM Acquisition, Inc., 781 F.2d 264, 273 (2d Cir. 1986)

[3] Id.

[4] Foley v. D’Agostino, 248 N.Y.S.2d 121, 128 (N.Y. App. Div. 1964)

[5] Rajeev Sindhwani, M.D., PLLC v Coe Bus. Serv., Inc., 52 AD3d 674, 677 (N.Y. App. Div. 2008)

[6] Id.

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