Chapter 21 - § 21.3 • FIDUCIARY DUTIES

• Jurisdiction: Colorado

§ 21.3 • FIDUCIARY DUTIES

§ 21.3.1—General Fiduciary Duties

The directors of a Colorado corporation owe a fiduciary duty to act at all times in good faith, with an extreme measure of candor and unselfishness in relation to the corporation's shareholders and in a manner that the officers and directors reasonably believe to be in the best interests of the corporation and its shareholders. This fiduciary duty is often characterized as being comprised of two distinct duties: the duty of care and the duty of loyalty.

§ 21.3.2—Duty of Care

The duty of care imposed upon directors in Colorado is statutory. The CBCA provides that directors must discharge their duties (1) in good faith, (2) with the care of an ordinarily prudent person in a like position under similar circumstances, and (3) in a manner reasonably believed to be in the corporation's best interest. C.R.S. § 7-108-401(1).

An important element of the duty of care is the requirement that directors act on an informed basis after due consideration of all relevant materials and issues with appropriate deliberation. In discharging this duty, directors are entitled to rely on the corporation's management and employees, outside experts such as accountants, attorneys, and investment bankers, and board committees, so long as each director reasonably believes the person or group providing the information or advice is reliable, is competent within the field that he or she is advising on, and otherwise merits confidence. C.R.S. § 7-108-401(1) and (2). Additionally, the obligation to act in good faith in exercising the duty of care requires that directors be candid and provide the other directors or shareholders with all information necessary to make an informed decision with respect to matters submitted for their consideration and approval. C.R.S. § 7-108-401(3).

§ 21.3.3—Duty of Loyalty

The duty of loyalty imposed upon directors in Colorado is primarily common law based. 1 Colo. Practice, Methods of Practice § 2.77 (7th ed.). The duty of loyalty requires the director to place the best interest of the corporation and its shareholders before his or her own.¹ While this typically means that directors cannot usurp corporate opportunities, engage in businesses that compete directly with the corporation, or enter into a transaction with another corporation of which the director has a financial interest or serves as an officer or director, it does not prohibit directors from ever acting in their own interests or from...