PUERTO RICO Law and Practice Contributed by: Fernando J. Rovira-Rullán and Andrés I. Ferriol-Alonso, Ferraiuoli LLC
• to act pursuant to the objectives and purposes of the corporation; • to perform their duties with the care and attention that a reasonable and competent person would exercise under similar circumstances (“duty of care”); and • to act in a just manner and exercise their powers with the utmost loyalty and in the best interests of the corporation and its shareholders (“duty of loyalty”). The duty of care includes responsibilities such as: • the duty to monitor; and • the duty to make enquiries. The duty of loyalty imposes upon directors and offic - ers the obligation to act in the best interest of the corporation and its shareholders, setting aside their own personal interests. In order to comply with this duty of loyalty, the directors and officers must avoid transactions that may result in a conflict of interest with the corporation. The directors and officers of a corporation should not engage in or become involved with businesses that compete with the corporation, nor should they use material non-public information for their personal gain. The Corporations Act expressly extends the duties set forth above to the members and managers of LLCs. A director will be found to have violated their duty of care where a plaintiff is able to prove that the actions of the director were grossly negligent. To establish that the director was grossly negligent, the plaintiff must first overcome the presumption provided by the “business judgement rule” – ie, the presumption that in making a decision, the director was informed and acted in good faith and in what they believed were the best interests of the corporation. Furthermore, the business judgement rule provides that the plaintiff must prove that a reasonable com - mercial basis for the director’s decision did not exist. The underlying purpose of the business judgement rule is to allow directors and officers to make reason - able business decisions without holding them respon - sible for the success or failure of each venture.
Where the presumption established by the business judgement rule is overcome, the implicated directors are subject to the “entire fairness” judicial standard of review, under which a director must show that the decision was taken with the utmost good faith and that it was inherently fair to the shareholders. Notwithstanding the foregoing, a corporation’s certifi - cate of incorporation may include a provision limiting or eliminating the monetary responsibility of a director or officer for breaching their fiduciary duties, with the exception of the duty of loyalty and acts or omissions done in bad faith. 3.7 Responsibility/Accountability of Directors Fiduciary duties are owed to the corporation and shareholders. In the case of LLCs, members and man - agers are subject to the same fiduciary duties as the directors, officers and shareholders of a Puerto Rico Corporation. Regularly, in terms of fiduciary duties, the board or management body is required to take into considera - tion the interests of the entity itself and of its share- holders or members. That said, through the certificate of incorporation or by-laws (for corporations), and especially in the limited liability company agreement (for LLCs), other interests may be agreed upon for consideration by the board or management body. As previously mentioned, in the case of a Benefit Corpo - ration, directors, in making their determinations, are allowed to consider factors other than the best inter - ests of the shareholders; for example, they are allowed to take into consideration the general public benefit being pursued, the best interests of the employees and the community at large (among other things). 3.8 Breach of Directors’ Duties Excluding derivative suits, shareholders may bring a direct lawsuit against directors and officers if they can demonstrate that they suffered harm individually as a result of the breach of fiduciary duties. This typically requires a showing of personal loss or injury sepa - rate from the harm suffered by the corporation as a whole. The responsible directors and officers can be held liable for their breach of fiduciary duties through various means, which may include the following.
582 CHAMBERS.COM
Powered by FlippingBook