6.1 Introduction

• Library: Corporations and Partnerships in Virginia (Virginia CLE) (2016 Ed.)

6.1 INTRODUCTION

6.101 In General. This chapter discusses the duties of directors and officers to their corporation and its shareholders. Many of these duties are set out in provisions of the Virginia Stock Corporation Act (the Act). ¹

The Act provides that a corporation must be managed under the direction of its board of directors, subject to any limitation in the corporation's articles of incorporation or in a shareholder agreement authorized under sections 13.1-671.1 and 13.1-673(B) of the Virginia Code. In turn, the board of directors selects and delegates substantial powers to the corporation's executive officers. ² Officers, including the president, need not be members of the board of directors, ³ nor must they be appointed by the board of directors, provided they have been appointed by an officer who has been given the power to appoint other officers by the bylaws or by the board of directors. ⁴

A 1994 amendment to section 13.1-693 of the Virginia Code deleted the requirement that a Virginia corporation have at least a president and a secretary as officers. Virginia corporations are permitted under section 13.1-693 to have "such officers with such titles and duties as shall be stated in the bylaws or in a resolution of the board of directors that is not inconsistent with the bylaws and as may be necessary to enable it to execute documents that comply with subsection F of section 13.1-604" Section 13.1-604(F) simply requires that documents filed with the State Corporation Commission be signed in the name of the corporation by the chairman, any vice chairman, the president, or any other officer authorized to act on behalf of the corporation

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and, in certain circumstances, by an incorporator, receiver, trustee, or other court-appointed fiduciary.

6.102 Duties of Directors and Officers. In their management of the business and affairs of the corporation, directors and officers must discharge two broad obligations. These twin duties are the "duty of care" and the "duty of loyalty." The duty of care requires that directors and officers perform their duties in accordance with their good faith business judgment of the best interests of the corporation (the "business judgment rule"). ⁵ The duty of loyalty is a much stricter standard. It prohibits directors and officers from using their corporate positions to secure personal profit or other personal advantage at the expense of the corporation or its shareholders. ⁶ In transactions that involve conflicts of interest between the directors or officers and their corporation, interested directors and officers must justify the fairness of the transaction to the corporation and its shareholders. ⁷ In contrast, the "business judgment rule" applies when no conflict of interest is involved. ⁸ When a conflict of interest is involved, the burden shifts to the directors to show that their action complied with the requirements of section 13.1-690. ⁹

In addition to general corporate law duties, directors and officers also must discharge additional obligations imposed upon them by state and federal securities laws. These obligations include (i) ensuring full disclosure is made in connection with sales of their corporation's securities; (ii) ensuring full disclosure is made in their corporation's periodic reports to the Securities and Exchange...