Corporate Malfeasance

Corporate malfeasance issues arise in various corporate decision making contexts and can often result in a breach of fiduciary duty.  Corporate directors, who have corporate fiduciary duty responsibilities, must make important business decisions on a daily basis and they are generally safeguarded under the law by way of the business judgement rule.  The business judgement rule provides corporate directors the presumption that their conduct, or their decisions on the day-to-day business matters, is based on a bona fide regard for the interest of the corporation whose affairs the stockholders have committed solely to the determination of the directors.

Again, the presumption is an important business aspect of what has ultimately come to be known as the business judgement rule.  The business judgment rule applies to situations that significantly impact the corporation’s assets as well as to other corporate affairs in general.  To further define this rule, the business judgement rule provides “a board of directors enjoys a presumption of sound business judgment, and its decisions will not be disturbed if they can be attributed to any rational business purpose.  A court under such circumstances will not substitute its own notions of what is or is not sound business judgement.”

Our Chicago business litigation attorneys often find that shareholders will challenge a corporate directors decisions, especially when these decisions negatively impact the corporation and its profits. In these business situations, the shareholder will have the burden of proving a breach of fiduciary duty under the business judgement rule.  However, before any action by a corporation’s board, in the context of enactment of a corporate directors defenses, can fall within the protective scope of the business judgment rule, the corporate directors generally prove the following:

  • the corporate director had reasonable grounds to believe that a danger to corporate policy existed
  • the business judgment is reasonable in relation to the threat imposed

Corporate malfeasance issues arise in various corporate decision making contexts and can often result in a breach of fiduciary duty. Corporate directors must understand that they have corporate fiduciary duty responsibilities to the corporation, shareholders and its officers.

The above summary is simply an example of situations involving corporate malfeasance.  Numerous corporate malfeasance issues arise in everyday business contexts.  Our Chicago commercial litigation attorneys provide a range of business and corporate law services, serve a variety of industries, and assist entrepreneurs, professionals, start-ups and small businesses.  For specific business litigation inquires, please contact our Chicago law firm for counsel to see how we might be of service to you or your business.

Corporate Nonfeasance Versus Corporate Malfeasance

A fiduciary, or a person in a position of trust, generally breaches a fiduciary duty in one of two ways:  the director or officer can either take inappropriate corporate action or fail to take any corporate action at all.  The distinction between corporate nonfeasance and corporate malfeasance is not always clear, especially in cases involving both affirmative acts and omissions.  The precise nature of the corporate misconduct must be determined in order to analyze and assess the corporate litigation matter.