PUERTO RICO Law and Practice Contributed by: Fernando J Rovira-Rullán and Andrés I Ferriol-Alonso, Ferraiuoli LLC
4.6 Legal Duties of Directors/Officers The directors and officers of a corporation are bound by three principal legal obligations: • to act pursuant to the objectives and purpos - es of the corporation; • to perform their duties with the care and attention that a reasonable and competent person would exercise under similar circum - stances ( “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 sharehold - ers ( “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 officers 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 man- agers 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 negli - gent. To establish that the director was grossly
may designate a director without seeking the approval of the shareholders. A director desig - nated to the board of directors in such a fashion shall serve for the remainder of the former direc - tor’s term. Unless otherwise specified in the certificate of incorporation or by-laws, the officers of a cor - poration are appointed by the board of direc - tors without the need to seek the consent of the shareholders. The board of directors has the exclusive power to appoint and remove cor - porate officers as they deem to be in the best interests of the corporation. The members of an LLC may choose to appoint a manager or a group of managers who will have the rights and responsibilities provided in the limited liability company agreement. The authors note that the Corporations Act does not directly address the removal of the manager of an LLC; however, a manager may be removed by the members holding a majority interest in the LLC. 4.5 Rules/Requirements Concerning Independence of Directors Although there are no legal requirements for Puerto Rico corporations to have an independ - ent director(s), under the Corporations Act, inde - pendent directors are considered objective and free from conflicts of interest that could compro - mise their judgement, and there are rules and requirements related to the independence of directors and the management of potential con - flicts of interest. These rules aim to ensure that directors act in the best interest of the corpora - tion and its shareholders. Among the most sali - ent key considerations are the duty of loyalty and the duty of care, which are discussed in further detail in 4.6 Legal Duties of Directors/Officers .
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