Fiduciary Duties of a Director

Section 5210 of the California Corporations Code (the "Code") provides that subject to certain limitations relating to action required to be approved by members:

[T]he activities and affairs of a [California nonprofit public benefit] corporation shall be conducted and corporate powers shall be exercised by or under the direction of the board.  The board may delegate the management of the activities of the corporation to any person or persons, management company, or committee however composed, provided that the activities and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the board.

Directors are subject to two fiduciary duties in carrying out their governance responsibilities:  the duty of care and the duty of loyalty.  Section 5231(a) of the Code codifies these duties, providing as follows:

A director shall perform the duties of a director, including duties as a member of any committee of the board upon which the director may serve, in good faith, in a manner such director believes to be in the best interests of the corporation and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.

2 thoughts on “Fiduciary Duties of a Director

  1. While it may depend to some extent on whether the organization represented to individual directors that it would pay for D&O coverage, generally, there is no requirement that the organization obtain D&O insurance. Of course, there may be strong organizational reasons for the organization to purchase D&O coverage, including, but not limited to, board recruitment and retention of qualified directors.

  2. Tom K

    Is the NP required to pay for insurance for its directors?

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