Directors and officers of specific benefit corporations have fiduciary duties of care, loyalty, and candor. They must consider both the pecuniary interest of shareholders and the company's specific public benefit purpose. The duty of care requires prudent decision making. The duty of loyalty requires putting the company's interests before personal interests and disclosing conflicts. The duty of candor requires disclosing all material information accurately. Shareholders can enforce these duties if breached substantially and continuously or by failing to pursue the public benefit purpose for an unreasonable time.

1. Specific Benefit Corporations
Fiduciary Duties Workshop
Kim Lowe
Matt Norris
March 16, 2015

2. Fiduciary Duties for SBCs
© 2015 Fredrikson & Byron, P.A.2
Duty of Care Duty of Loyalty Duty of Candor
SBC Standard of Conduct
Apply To: OfficersDirectors

3. Duty of Care
© 2015 Fredrikson & Byron, P.A.3
“The care an ordinarily prudent person in a like position
would exercise under similar circumstances.”
Perfect
Decisions
Decision Making
Process
Importance of
Decision
Minimum Requirements for
Directors
 Attend meetings
 Stay informed of company’s
business affairs
 Engage in active discussion
 Consider all relevant factors

4. Duty of Care, cont.
© 2015 Fredrikson & Byron, P.A.4
“Red Flags”
• You don’t have to seek
out wrongdoers, but
can’t turn blind eye
• You have a duty to
investigate if sufficient
“red flags” raised
• You should follow up
until reasonably
satisfied situation is
being handled
appropriately
Reliance on Others
• You may reasonably
rely upon outsiders
• You are not
responsible if
information later turns
out to be wrong
• You have a duty to
investigate only if info
raises specific “red
flags” that warrant
further inquiry

5. Duty of Loyalty
© 2015 Fredrikson & Byron, P.A.5
Directors and officers must put the company’s interest first!
Be on the lookout for
 Conflicts between personal interests
and company’s interest
 Conflicts through a relative
 Conflicts through a business entity
How to handle conflicts
 Disclose all relevant information
related to a personal interest
 Remove conflicted director or officer
from the discussion and any vote
 Majority of disinterested directors
must approve
 Consider forming special committee

6. Duty of Loyalty, cont.
© 2015 Fredrikson & Byron, P.A.6
Business Opportunities
 Must disclose opportunities you
become aware of that relate to the
company’s business
 Disinterested directors must vote on
whether company should pursue
opportunity
 If Yes: You cannot pursue the
opportunity
 If No: You may pursue the
opportunity
Confidentiality
 Must keep company information
confidential
 Disclosing non-public information,
even to friends or relatives, can result
in civil liability

7. Duty of Candor
© 2015 Fredrikson & Byron, P.A.7
You must disclose all material info
You and company may never
mislead or misinform shareholders,
directors, or officers
You must provide accurate and up-to-
date information

8.  Pecuniary
interest of
shareholders
 Company’s
specific public
benefit
purpose
Standard of Conduct for SBCs
© 2015 Fredrikson & Byron, P.A.8
Must Consider May Consider
Cannot
 Employees
 Customers
 Suppliers
 Creditors
 Economy of the state and nation
 Community
always give priority to any particular interest or consideration unless specified in articles

9. Breach of Standard of Conduct
Enforcement
© 2015 Fredrikson & Byron, P.A.9
• Only shareholders can enforceWho
• Breach standard of conduct (1) to substantial extent and (2) in
sustained manner
• Failure to pursue specific public benefit purpose for
unreasonably long period of time
When
• Court has wide discretion
• Includes termination of PBC status, removal of directors, and
liquidation of company
Remedy
• Special provision in articles of incorporation
• Can’t claim violation of duty of loyalty if decision that complies
with standard of conduct does not result in specific public benefit
Added
Protection

10. Special Circumstances
© 2015 Fredrikson & Byron, P.A.10
Time To Call Your Attorney:
 Sale of the company
 Insolvency
 Winding down the business

11.  Pecuniary
interest of
shareholders
 Company’s
specific public
benefit
purpose
Recap
© 2015 Fredrikson & Byron, P.A.11
Duty of Care Duty of Loyalty Duty of Candor
SBC Standard of Conduct
1
Perfect
Decisions
Decision Making
Process
Importance of
Decision
2 3
#52807754