Duty of care

Definition

The duty of care stands for the principle that directors and officers of a corporation in making all decisions in their capacities as corporate fiduciaries, must act in the same manner as a reasonably prudent person in their position would.

Courts will generally adjudge lawsuits against director and officer actions to meet the duty of care, under the business judgment rule. The business judgment rule stands for the principle that courts will not second guess the business judgment of corporate managers and will find the duty of care has been met so long as the fiduciary executed a reasonably informed, good faith, rational judgment without the presence of a conflict of interest. The burden of proof lies with the plaintiff to prove that this standard has not been met. If the the plaintiff meets the burden, the defendant fiduciary can still meet the duty of care by showing entire fairness, meaning that both a fair process was used to reach the decision and that the decision produced a substantively fair outcome for the corporation's shareholders.

Note: Corporations may insert a provision in their articles of corporation that protect directors (not officers) from facing civil liability under the duty of care.