First, there are two types of duties: a duty of care and a duty of loyalty.
Duty of care: One of the two primary fiduciary duties directors owe to a company, requiring them to make business decisions that are in the organization’s best interests only after taking all information carefully into consideration. Board members fail to act with a duty of care when they fail to perform the necessary formalities, purposefully undercapitalize business accounts, and excessively control the corp.
Duty of loyalty: the other main duty directors owe to a company, requiring them to all times act in the company’s best interests by avoiding potential conflicts of interest and not usurping corporate opportunity for personal gain. The most common way to violate a duty of loyalty is by commingling business and personal accounts and continuing to perpetuate an obvious sham.
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