USA Law and Practice Contributed by: Matt Hurd, Melissa Sawyer and Scott Crofton, Sullivan & Cromwell LLP
holders. See 2.1 Hot Topics in Corporate Gov- ernance for more information regarding general fiduciary duties. In the case of insolvent corpora - tions, these duties require directors and officers to manage the corporation for the benefit of all residual beneficiaries, and creditors of insolvent companies may enforce these fiduciary duties against directors. Certain other states have various forms of con - stituency statutes, which permit the board in certain circumstances to balance the interests of stockholders against interests of other con - stituents, including customers, employers, sup - pliers or creditors. In addition, directors of pub - lic benefit corporations are required to consider the interests of the public, not just those of the stockholders. In certain states, including Delaware, all partners in a general partnership, the general partners in a limited partnership and the managers or man - aging members in an LLC owe similar fiduciary duties to the company and to the company’s other partners/members, but, unlike with cor - porations, these duties may be limited or elimi - nated entirely in the company’s organisational documents. 4.8 Consequences and Enforcement of Breach of Directors’ Duties Claims against a director of a US corporation for a fiduciary duty breach may be brought directly by the corporation or by its stockholders on behalf of the corporation or, in some instances, on their own behalf. The consequences of a breach of fiduciary duty may be monetary dam - ages or equitable relief. A director is typically protected from personal monetary liability arising out of a breach of his or her fiduciary duty of care in several ways.
Firstly, courts typically apply the business judge - ment rule when reviewing the business decisions of a director in connection with an alleged duty of care breach. Because this standard of review is highly deferential to the board, it is rare for a court to find a fiduciary duty breach in deci - sions subject to the business judgement rule. (Note that duty of loyalty claims are generally subject to a heightened standard of review in the absence of the satisfaction of certain require - ments, which means such claims are more likely to result in liability for directors.) Secondly, states typically permit corporations to adopt provisions in their organisational docu - ments that provide for the exculpation and/ or indemnification of directors for losses and expenses incurred in connection with a duty of care claim. Indemnification rights generally apply to officers as well, and recently adopted amendments to the DGCL now permit Dela - ware corporations to exculpate certain senior officers in connection with direct duty of care claims brought by stockholders (but not for claims brought by the corporation or brought derivatively by stockholders on the corporation’s behalf). However, state corporation law statutes generally preclude corporations from exculpat - ing and/or indemnifying directors and officers from duty of loyalty claims. Thirdly, states typically permit corporations to purchase liability insurance for their directors to cover losses resulting from fiduciary duty claims, including duty of care and loyalty claims. 4.9 Other Bases for Claims/Enforcement Against Directors/Officers Courts evaluate board action under different standards of review, depending on the facts and circumstances underlying the board action. As discussed in 2. Corporate Governance Context ,
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