PUERTO RICO Law and Practice Contributed by: Fernando J Rovira-Rullán and Andrés I Ferriol-Alonso, Ferraiuoli LLC
negligent, the plaintiff must first overcome the presumption provided by the “business judge- ment 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 pro - vides that the plaintiff must prove that a reason - able commercial 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 reasonable business deci - sions without holding them responsible for the success or failure of each venture. Where the presumption established by the busi - ness judgement rule is overcome, the implicated directors are subject to the “entire fairness” judi - cial 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 certificate of incorporation may include a provi - sion limiting or eliminating the monetary respon - sibility 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. 4.7 Responsibility/Accountability of Directors Fiduciary duties are owed to the corporation and shareholders. In the case of LLCs, members and managers 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 con - sideration the interests of the entity itself and of
its shareholders or members. That said, through the certificate of incorporation or by-laws (for corporations), and especially in the limited liabil - ity company agreement (for LLCs), other inter - ests may be agreed upon for consideration by the board or management body. As previously mentioned, in the case of a Benefit Corpora - tion, directors, in making their determinations, are allowed to consider factors other than the best interests 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). 4.8 Consequences and Enforcement of Breach of Directors’ Duties Excluding derivative suits, shareholders may bring a direct lawsuit against directors and offic - ers if they can demonstrate that they suffered harm individually as a result of the breach of fiduciary duties. This typically requires a show - ing of personal loss or injury separate 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. • Monetary damages – directors and officers found to have breached their fiduciary duties can be held personally liable for monetary damages. This may include compensating the corporation, shareholders or other affected parties for any financial losses incurred as a result of the breach. • Injunctive relief – courts can issue injunctions to prevent the continuation of the wrongful conduct or to require specific actions to rec - tify the breach and protect the interests of the corporation or affected parties. • Rescission or restoration – in cases where the breach involved a transaction or action that
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