Standards of Conduct for Directors

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  7. Standards of Conduct for Directors

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  1. Unless a different standard is prescribed by law, a director shall perform his or her duties as a director in good faith and with the degree of care an ordinarily prudent person in a like position would exercise under similar circumstances.
  2. In performing his or her duties, a director may rely upon:
    1. Officers, employees, or agents of the corporation whom the director reasonably believed to be reliable and competent in the functions performed; and
    2. Information, data, opinions, reports, or statements provided by officers, employees, or agents of the corporation or by legal counsel, public accountants, investment bankers, religious authorities, ministers, priests, rabbis, or other persons as to matters involving the skills, expertise, or knowledge reasonably believed to be reliable and within such person's professional or expert competence.
  3. There shall be a presumption that the process a director followed in arriving at decisions was done in good faith and that such director exercised ordinary care; provided, however, that this presumption may be rebutted by evidence that such process constitutes gross negligence by being a gross deviation from the standard of care of a director in a like position under similar circumstances.
  4. Nothing contained in this Code section shall:
    1. In any instance when fairness is at issue, such as consideration of the fairness of a transaction to the corporation as evaluated under paragraph (4) of subsection (b) of Code Section 14-3-861, alter the burden of proving the fact or lack of fairness otherwise applicable;
    2. Alter the fact or lack of liability of a director under the Official Code of Georgia Annotated, including the governance of the consequences of an unlawful distribution under Code Section 14-3-831 or a conflicting interest transaction under Code Section 14-3-861;
    3. Affect any rights to which the corporation or its members may be entitled under another law of this state or of the United States; or
    4. Deprive a director of the applicability, effect, or protection of the business judgment rule.
  5. A director shall not be deemed to be a trustee with respect to the corporation or with respect to any property held or administered by the corporation, including, without limit, property that may be subject to restrictions imposed by the donor or transferor of such property.

(Code 1981, §14-3-830, enacted by Ga. L. 1991, p. 465, § 1; Ga. L. 2020, p. 85, § 1/SB 373.)

The 2020 amendment, effective July 1, 2020, rewrote this Code section, which read: "Unless a different standard is prescribed by law:

"(1) A director shall discharge his or her duties as a director, including his or her duties as a member of a committee:

"(A) In a manner the director believes in good faith to be in the best interests of the corporation; and

"(B) With the care an ordinarily prudent person in a like position would exercise under similar circumstances;

"(2) In discharging his or her duties, a director is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by:

"(A) One or more officers or employees of the corporation whom the director reasonably believes to be reliable and competent in the matters presented;

"(B) Legal counsel, public accountants, or other persons as to matters the director reasonably believes are within the person's professional or expert competence;

"(C) A committee of the board of which the director is not a member, as to matters within its jurisdiction, if the director reasonably believes the committee merits confidence; or

"(D) Religious authorities, ministers, priests, rabbis, or other persons whose positions or duties in the corporation the director believes justify reliance and confidence and whom the director believes to be reliable and competent in the matters presented;

"(3) In the instances described in paragraph (2) of this Code section, a director is not entitled to rely if he has knowledge concerning the matter in question that makes reliance otherwise permitted by paragraph (2) of this Code section unwarranted;

"(4) A director is not liable to the corporation, any member, or any other person for any action taken or not taken as a director if the director acted in compliance with this Code section; and

"(5) A director shall not be deemed to be a trustee with respect to the corporation or with respect to any property held or administered by the corporation, including, without limit, property that may be subject to restrictions imposed by the donor or transferor of such property." See Editor's notes for applicability.

Editor's notes.

- Ga. L. 2020, p. 85, § 6/SB 373, not codified by the General Assembly, provides that: "This Act shall apply only to causes of action arising on or after July 1, 2020."

COMMENT

This section is based both on the Model Act and on its Business Code counterpart. Unlike either, however, it contains an introductory proviso intended to acknowledge the existence of other laws that may establish different standards with respect to some activities engaged in by directors, such as investment of corporate funds. Subsection (1) departs from the Model Act and follows the Business Code formulation of standards verbatim. Subsections 2(D) and (5) are taken from the Model Act.

Law reviews.

- For article, "What Duty of Care Does a Homeowner Association Owe Its Members?," see 22 Ga. St. Bar J. 19 (Dec. 2016).


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