Lawrence A. Hamermesh and Leo E. Strine Jr.
This chapter examines Delaware’s corporate fiduciary law, focusing on how the courts have sought to balance concerns about opportunism or carelessness, unchecked by statute, against the direct and indirect costs of resorting to litigation against directors to limit such opportunism or carelessness. It first traces the evolution of Delaware case law before discussing the institutional setting and philosophical foundations of the Delaware corporate fiduciary law. It then considers two core principles that underpin Delaware’s regulation of the fiduciaries who govern corporations: fiduciaries should have the authority to be creative, take chances, and make mistakes so long as their interests are aligned with those who elect them; in cases where there might be a conflict of interest, there are accountability tools to ensure that the stockholder electorate is protected from unfair exploitation. The chapter also explores four contexts of judicial review of fiduciary conduct involving the board of directors: the “business judgment rule,” freeze-out mergers, mergers and acquisitions (takeover defenses, change of control mergers), and voting manipulation and entrenchment.
This chapter examines fiduciary duty in corporate law. Fiduciary duty is pervasive as well as all encompassing in corporate law. One common misconception about fiduciary duty in corporate law is that it is merely aspirational. Fiduciary duties are not simply moral requirements, they are legal ones. They are not merely suggestions, they represent the demands of the law. Although corporate law has often compromised rather than insisting upon strict enforcement of fiduciary law principles, these compromises are due to practical considerations that are entirely consistent with the goals of fiduciary law. In corporate law, general fiduciary law principles are balanced with practical considerations concerning the profit motive in order to achieve the best overall result for the shareholders. Understanding this tension between ambition and practicality is key to understanding fiduciary duty in corporate law. This chapter first considers the triggers for fiduciary duty in corporate law before discussing the role that the duty of loyalty plays in corporate law. It then explores the duty of care in corporate law, along with other fiduciary duties such as good faith, takeover situations and contests for control, shareholder voting rights, and the duty to monitor and the duty to disclose. The chapter proceeds by analyzing mandatory and default rules regarding the extent to which fiduciary duties can be waived in corporate law and concludes with an overview of remedies for breach of fiduciary duty.
This chapter examines fiduciary principles in the context of unincorporated business entities, specifically general partnerships, limited partnerships (LPs), limited liability companies (LLCs). It begins with an overview of the sources of law that govern unincorporated business entities, covering both Delaware law as well as the various uniform unincorporated entity statutes promulgated by the Uniform Law Commission (ULC). The chapter proceeds by discussing the triggers for fiduciary duties in unincorporated entity law. It also explores the fiduciary duty of loyalty and duty of care for general partnerships, LPs, and LLCs, along with other legal obligations such as the obligation of disclosure and the duty of good faith and fair dealing. Finally, the chapter explains the extent to which fiduciary duties in unincorporated entity law are mandatory or subject to waiver by contractual agreement, as well as the remedies available for breach of fiduciary duty in general partnerships, LPs, and LLCs.