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As the relationship between a company and its directors should comply with the article related to mandate under the Commercial Law of Korea, the directors are liable to fulfill their duties with the ...
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As the relationship between a company and its directors should comply with the article related to mandate under the Commercial Law of Korea, the directors are liable to fulfill their duties with the care of loyalty describing that the directors should follow the articles of incorporation and the share holders'' resolution as well as laws, and that faithfully carry out their duties for the interest of company.
But, These duties dampened their management effectivity. The burden of providing evidence that directors, in reaching their challenged decision, breached any one of the triads of their fiduciary duty ― good faith, loyalty, or due care
The business judgment rule is a United States case law-derived concept in corporations law whereby the directors of a corporation are clothed with the presumption, which the law accords to them, of being motivated in their conduct by a bona fide regard for the interests of the corporation whose affairs the stockholders have committed to their charge.
Given that the directors can not ensure corporate success, the business judgment rule specifies that the court will not review the business decisions of directors who performed their duties (1) in good faith; (2) with the care that an ordinarily prudent person in a like position would exercise under similar circumstances; and (3) in a manner the directors reasonably believe to be in the best interests of the corporation. As part of their duty of care, directors have a duty not to waste corporate assets by overpaying for property or employment services. The business judgment rule is very difficult to overcome and courts will not interfere with directors unless it is clear that they are guilty of fraud or misappropriation of the corporate funds, etc.
In effect, the business judgment rule creates a strong presumption in favor of the Board of Directors of a corporation, freeing its members from possible liability for decisions that result in harm to the corporation. The presumption is that in making business decisions not involving direct self-interest or self-dealing, corporate directors act on an informed basis, in good faith, and in the honest belief that their actions are in the corporation''s best interest. In short, it exists so that a Board will not suffer legal action simply from a bad decision. As the Delaware Supreme Court has said, a court will not substitute its own notions of what is or is not sound business judgment. if the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company.
Although a distinct common law concept from duty of care, duty of loyalty is often evaluated by courts in certain cases dealing with violations by the board. While the business judgment rule is historically linked particularly to the duty of care standard of conduct, shareholders who sue the directors often charge both the duty of care and duty of loyalty violations.
This forced the courts to evaluate duty of care (employing the business judgment rule standard of review) together with duty of loyalty violations that involve self-interest violations (as opposed to gross incompetence with duty of care). Violations of the duty of care are reviewed under a gross negligence standard, as opposed to simple negligence.
Consequently, over time, one of the points of review that has entered the business judgment rule was the prohibition against self-interest transactions. Conflicting interest transactions occur when a director, who has a conflicting interest with respect to a transaction, knows that she or a related person is a party to the transaction; has a beneficial financial interest in, or closely linked to, the transaction that the interest would reasonably be expected to influence the director''s judgment if she were to vote on the transaction; or is a director, general partner, agent, or employee of another entity with whom the corporation is transacting business and the transaction is of such importance to the corporation that it would in the normal course of business be brought before the board
According to judicial precedents, the duty of loyalty is not an different duty from the duty of care as a good manager, which accompanies a typical mandate relationship. It is just an additional statement on the basis of the duty of care, not a higher level of liability. The directors'' duty of loyalty and the duty of care come from the status of the directors as a mandatory. But It is different between duty of care and duty of loyalty. Duty of loyalty is a unique principle. This point of view has explained.
Limitation of Directors'' duties and liabilities principle is ruling four nation''s commercial law. Because in a case that the directors should compensate for damage tho the company, the general principle is that the company sue the directors for their liabilities. It is harmful to effective management company. It is necessary to reduce the directors'' duties and liability.
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