Fiduciary Duties

Exercise 13. Compare the information

The following texts are samples of Memorandum of Associations and Articles of Association, both are foundation documents for a company incorporation in the UK.

Compare the above Bylaws and Articles of Incorporation (АЯЮ стр. 98) to the documents below. Finish the sentences paying attention to the highlighted connectors. Make up sentences of your own.

Both the Articles of Incorporation and the Memorandum of Association contain information on ……

Corporate Bylaws as well as the Articles of Association set forth the rules of ……….

Similar to the Articles of Associations the information on directors powers in the Bylaws ………

In comparison to the Articles of Incorporation the Memorandum of Association provides ……

Unlike the Articles of Association the Memorandum specifies ……..

The provisions on authorized share capital and shares classification are set forth in ……. as well as ….. (and)…..

The provisions on annual and special meetings procedure is found both ….. and …….

Unlike the Articles of Incorporation the Bylaws contain articles related to …….

Part III. Director’s Fiduciary Duties

Vocabulary Note:

fiduciary (n) – доверенное лицо;

fiduciary (adj) – фидуциарный, основанный на доверие;

fiduciary duty – обязанность облеченного доверием лица

Exercise 14

Read the following text to answer the questions below/

1. Why must directors have fiduciary duties?
2. What is the difference between the duty of care and the duty of loyalty?
3. What is the main idea of the duty of obedience?

Fiduciary Duty. Because board members are entrusted with the money and property of the association they are held to a higher standard. They are deemed "fiduciaries" and have a duty to act in the best interests of the membership.

“A duty to act for someone else's benefit, while subordinating one's personal interest to that of the other person. It is the highest standard of duty implied by law” (e.g., trustee, guardian). (Black's Law Dictionary.)

Duty of care is a standard that requires a board member to exercise the same care that an ordinary, prudent person would exercise in a like position or under similar circumstances. It means that board members should attend board meetings and be informed about the activities of the organization in order to be able to make informed and independent decisions when voting. State laws differ on the degree of care required of board members.

Duty of loyalty is a standard that requires a board member to act in good faith, be faithful to the organization and pursue the organization’s best interests. It means that board members must be dedicated to the organization’s mission and put the interests of the organization above self-interest.

A breach of this standard would be considered self-dealing. To eliminate the risk of self-dealing, directors should provide full disclosure of any issues that could cause a potential conflict of interest. If potential conflicts of interest occur, the affected board members should not attempt to unduly influence the rest of the board and should recuse themselves from discussing and voting on the matter.

Duty of obedience requires the board to act in accordance with the organization’s rules and policies, and in furtherance of its goals as stated in the mission statement, articles of incorporation and bylaws. In addition, the board must comply with state and federal laws. The duty of obedience forbids acts outside the scope of corporate powers.

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