California LLC Member and Manager Duties to the LLC and to Each Other

California LLC Member and Manager Duties to the LLC and to Each Other

In a member-managed LLC, each member owes a duty of loyalty and a duty of care to the LLC and to the other members.

In a manager-managed LLC, each manager owes a duty of loyalty and a duty of care to the LLC and to the members. Members who are not managers do not owe the duty of loyalty or the duty of care.

Note however that you also must read (and understand) the operating agreement to determine if any of these duties are expanded; to determine if any of these duties are reduced or purportedly eliminated (they cannot be eliminated); and, in a member-managed LLC, to determine if any of these duties are shifted from one member to one or more other members.

Issues, questions and disputes about legal responsibilities/duties and rights pursuant to these duties usually don’t arise or usually are relatively uncomplicated while the LLC members and managers are dealing with each other honestly, openly, and fully, as in most businesses and situations. In my practice I handle situations and represent clients where legal responsibilities and rights and the actions and inactions of the people who are involved are seriously at issue. And you can see from the wording and definitions in these materials that there can be significant uncertainty and vagueness about exactly what the responsibilities and rights are and can be in different situations.

Duty of Loyalty. The duty of loyalty is limited to the following unless the operating agreement provides otherwise (again, you must read and understand the operating agreement):

Account and Accounting. An LLC member in a member-managed LLC, or a manager in a manger-managed LLC must account to the LLC and hold as a trustee any property, profit, or benefit, that the member or manager, respectively, derives in the conduct of the LLC or in the winding up of the LLC’s activities, or from the use of the LLC’s property including but not limited to the appropriation of an LLC opportunity.  Also take note whether a specific member or a specific manager is tasked with the function of accounting for the LLC.

Adverse Interest. Each member (in a member-managed LLC) and each manager (in a manager-managed LLC) must not deal with the LLC, or on behalf of a person with respect to the LLC, as an interest adverse to the LLC.

Competing with the LLC. Each member (in a member-managed LLC) and each manager (in a manager-managed LLC) must not compete with the LLC in the conduct of the LLC or in the winding up of the LLC’s activities.

Duty of Care. The duty of care in the conduct of the LLC or in the winding up of the LLC’s activities is limited to not committing gross negligence or reckless conduct, intentional misconduct, or a knowing violation of law. However, you must read and understand the operating agreement as it is permissible for the agreement to expand the standard of culpability to ordinary or simple negligence.

Duty of Good Faith and Fair Dealing. In both a member-managed and in a manager-managed LLC, members and managers have a duty of good faith and fair dealing to the LLC and to the other members – for example, to not obtain an advantage or benefit by any misrepresentation or concealment or other means. And this is true whether the duties arise under the California Revised Uniform Limited Liability Company Act (CRULLCA) or the LLC’s operating agreement. A duty of good faith and fair dealing is a duty of care; however, you can also see that it is a duty of care that is separate from the culpability standards.

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Remember, every case and situation is different. It is important to obtain and evaluate all of the evidence that is available, and to apply that evidence to the applicable standards and laws. You do need to consult with an attorney and other professionals about your particular situation. This post is not a solicitation for legal or other services inside of or outside of California, and, of course, this post only is a summary of information that changes from time to time, and does not apply to any particular situation or to your specific situation. So . . . you cannot rely on this post for your situation or as legal or other professional advice or representation.

Thank you for reading this post. I ask that you also pass it along to other people who would be interested as it is through collaboration that great things and success occur more quickly. And please also subscribe to this blog and my other blog (see below), and connect with me on LinkedIn and Twitter.

Best to you, David Tate, Esq. (and inactive California CPA) – practicing in California only.

I am also the Chair of the Business Law Section of the Bar Association of San Francisco.

Blogs: Trust, estate/probate, power of attorney, conservatorship, elder and dependent adult abuse, nursing home and care, disability, discrimination, personal injury, responsibilities and rights, and other related litigation, and contentious administrations http://californiaestatetrust.com; Business, D&O, board, director, audit committee, shareholder, founder, owner, and investor litigation, governance, responsibilities and rights, compliance, investigations, and risk management  http://auditcommitteeupdate.com

My law practice primarily involves the following areas and issues:

Probate Court Disputes and Litigation

  • Trust and estate disputes and litigation, and contentious administrations representing fiduciaries and beneficiaries; elder abuse; power of attorney disputes; elder care and nursing home abuse; conservatorships; claims to real and personal property; and other related disputes and litigation.

Business and Business-Related Disputes and Litigation: Private, Closely Held, and Family Businesses; Public Companies; and Nonprofit Entities

  • Business v. business disputes including breach of contract; unlawful, unfair and fraudulent business practices; fraud, deceit and misrepresentation; unfair competition; breach of the covenant of good faith and fair dealing; etc.
  • Misappropriation of trade secrets
  • M&A disputes
  • Founder, officer, director and board, investor, shareholder, creditor, VC, control, governance, decision making, fiduciary duty, conflict of interest, voting, etc., disputes
  • Buy-sell disputes
  • Funding and share dilution disputes
  • Accounting, lost profits, and royalty disputes
  • Access to corporate and business records disputes
  • Employee, employer and workplace disputes, discrimination, whistleblower and retaliation, harassment, defamation, etc.

Investigations and Governance

  • Corporate and business internal investigations
  • Board, audit committee and special committee governance and processes, disputes, conflicts of interest, independence, etc.

The following are copies of the tables of contents of three of the more formal materials that I have written over the years about accounting/auditing, audit committees, and related legal topics – Accounting and Its Legal Implications was my first formal effort, which resulted in a published book that had more of an accounting and auditing focus; Chapter 5A, Audit Committee Functions and Responsibilities, for the California Continuing Education of the Bar has a more legal focus; and the most recent Tate’s Excellent Audit Committee Guide (February 2017) also has a more legal focus:

Accounting and Its Legal Implications

Chapter 5A, Audit Committee Functions and Responsibilities, CEB Advising and Defending Corporate Directors and Officers

Tate’s Excellent Audit Committee Guide

The following are other summary materials that you might find useful:

OVERVIEW OF A RISK MANAGEMENT PROCESS THAT YOU CAN USE 03162018

Audit Committee 5 Lines of Success, Diligence, and Defense - David Tate, Esq, 05052018

COSO Enterprise Risk Management Framework ERM Components and Principles

From a prior blog post which you can find at https://wp.me/p75iWX-dk if the below scan is too difficult to read:

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Forwarding two posts by Priya Cherian Huskins, Esq of Woodruff Sawyer: Delaware Supreme Court in Marchand discusses board-level monitoring, and director independence

I am forwarding two posts by Priya Cherian Huskins, Esq. of Woodruff Sawyer – Ms. Huskins’ posts highlight recent Delaware Supreme Court holdings in  Marchand which are or should be important considerations for all boards and board committees.

In the post immediately below (click the link) Ms. Huskins discusses the court’s holding that the board (and its committees) must have monitoring processes in place. As an example, whereas it is a management responsibility to design, implement, monitor, and update risk management (or ERM) and compliance processes, and it is often said that it is the responsibility of the board (or of a committee of the board in conjunction with the board) to oversee that management has done so (i.e., a duty to oversee), Marchand makes it clear that the board/board committee oversight responsibility is an active and diligent oversight responsibility and that the board/board committee must also itself have oversight processes in place – both management and the board/board committee must design, implement, monitor and update processes to satisfy their different responsibilities, and the board/board committee can be found to be in breach of its oversight responsibilities if it fails to do so.

Here is the link to Ms. Huskins’ post pertaining to Marchand and board/board committee oversight and monitoring processes: Delaware Supreme Court Underscores the Importance of Board-Level Monitoring in Marchand (Duty of Loyalty) https://woodruffsawyer.com/do-notebook/board-level-monitoring/

In the second post (click the link below) Ms. Huskins discusses the holding in Marchand pertaining to director independence, and as I often refer to independence as situational independence. You might be aware that whether or not a director is independent in a particular situation can be extremely important as it can impact whether or not the board/board committee has properly performed its responsibilities, the burden of proof or standard that will apply in evaluating whether or not the board/board committee has performed its responsibilities, whether or not the business judgment rule will or might apply, and whether or not the action, decision or vote by the board/board committee in the particular circumstance is valid and enforceable.

The issue of independence is determined by the court on a legal and factual basis depending on the law, facts and admissible evidence in the particular situation. For example, as you might be aware (and you should be aware), when evaluating whether a director is sufficiently independent from the CEO for the purpose of that director making a decision pertaining to that CEO, or when evaluating whether a director is sufficiently independent for the purpose of making a decision pertaining to a control or M&A transaction, or whether a director is sufficiently independent when making a decision pertaining to an evaluation or investigation pertaining to the actions of or an accusation against an executive officer, the courts do in fact also look at not only the direct and extended family relationships and connections between the director and the person(s) involved in or benefiting from the transaction, but also variously can consider their direct and indirect social and business groups, clubs, friends and activities; the co-ownership of assets; and whether the director might feel hesitant to act with independence for any particular reason including, for example, the importance of that directorship to the director, the extent to which the director and the other person(s) have children in the same schools or school classes together, spousal and significant other connections, and other similar relationships and connections, etc.

You get the point – whereas not too many years ago, whether or not a director is sufficiently situational independent was a much less potentially complicated evaluation and issue, those times have changed and are now long gone. Here is the link to Ms. Huskins’ post pertaining to Marchand and the evaluation of director independence: Delaware Supreme Court Further Clarifies Its View of Director Independence in Marchand https://woodruffsawyer.com/do-notebook/delaware-supreme-court-marchand-director-independence/?utm_source=newsletter&utm_medium=email&utm_campaign=blog-management-liability

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Remember, every case and situation is different. It is important to obtain and evaluate all of the evidence that is available, and to apply that evidence to the applicable standards and laws. You do need to consult with an attorney and other professionals about your particular situation. This post is not a solicitation for legal or other services inside of or outside of California, and, of course, this post only is a summary of information that changes from time to time, and does not apply to any particular situation or to your specific situation. So . . . you cannot rely on this post for your situation or as legal or other professional advice or representation.

Thank you for reading this website. I ask that you also pass it along to other people who would be interested as it is through collaboration that great things and success occur more quickly.

Best to you, David Tate, Esq. (and inactive California CPA) – practicing in California only.

I am also the Chair of the Business Law Section of the Bar Association of San Francisco.

Blogs: Trust, estate/probate, power of attorney, conservatorship, elder and dependent adult abuse, nursing home and care, disability, discrimination, personal injury, responsibilities and rights, and other related litigation, and contentious administrations http://californiaestatetrust.com; Business, D&O, board, director, audit committee, shareholder, founder, owner, and investor litigation, governance, responsibilities and rights, compliance, investigations, and risk management  http://auditcommitteeupdate.com

The following are copies of the tables of contents of three of the more formal materials that I have written over the years about accounting/auditing, audit committees, and related legal topics – Accounting and Its Legal Implications was my first formal effort, which resulted in a published book that had more of an accounting and auditing focus; Chapter 5A, Audit Committee Functions and Responsibilities, for the California Continuing Education of the Bar has a more legal focus; and the most recent Tate’s Excellent Audit Committee Guide (February 2017) also has a more legal focus:

Accounting and Its Legal Implications

Chapter 5A, Audit Committee Functions and Responsibilities, CEB Advising and Defending Corporate Directors and Officers

Tate’s Excellent Audit Committee Guide

The following are other summary materials that you might find useful:

OVERVIEW OF A RISK MANAGEMENT PROCESS THAT YOU CAN USE 03162018

Audit Committee 5 Lines of Success, Diligence, and Defense - David Tate, Esq, 05052018

COSO Enterprise Risk Management Framework ERM Components and Principles

From a prior blog post which you can find at https://wp.me/p75iWX-dk if the below scan is too difficult to read:

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Takeaways from a PLI program that I recently viewed about CAMs (critical audit matters) . . . .

The following are some of my takeaways from a PLI program that I recently viewed:

– By definition CAMs (critical audit matters) pertain, if at all, only to audit matters that involve especially challenging, subjective or complex auditor judgment. In other words, whereas issues pertaining to “reasonableness” or “materiality” are more objective, the evaluation of possible CAMs is subjective and different auditors could entirely disagree on the same fact patters. This could create an interesting dynamic between the auditor on the one hand, and the audit committee, or the board, or the CEO, or the CFO on the other hand. On question might be: how far up the ladder within the auditing firm did the auditor in charge run the possible CAM?

– CAMs apply only to that particular audit. A CAM involves the discussion or disclosure of original information about that particular audit, but not the disclosure of original information about the company.

– An audit committee should do CAM dry runs with the auditor, such as during or even before the third quarter of the fiscal year. Also consider, for example, if it is too early for a CAM dry run, request your auditor to discuss what the CAMs might have been for the prior audit year if the CAM provisions had been in effect during that year. If your auditor isn’t proposing dry runs, she or he should be. Why isn’t she or he?

– CAMs are the auditor report. CAMs are not the company’s report.

– Expect that most audits will have one or more CAMs.

– The audit committee should be involved in the CAM process.

– No one wants the CAMs to cause unintended consequences.

Search for the words CAM or CAMs within this blog to see my several other posts about CAMs.

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Remember, every case and situation is different. It is important to obtain and evaluate all of the evidence that is available, and to apply that evidence to the applicable standards and laws. You do need to consult with an attorney and other professionals about your particular situation. This post is not a solicitation for legal or other services inside of or outside of California, and, of course, this post only is a summary of information that changes from time to time, and does not apply to any particular situation or to your specific situation. So . . . you cannot rely on this post for your situation or as legal or other professional advice or representation.

Thank you for reading this website. I ask that you also pass it along to other people who would be interested as it is through collaboration that great things and success occur more quickly.

Best to you, David Tate, Esq. (and inactive California CPA) – practicing in California only.

I am also the Chair of the Business Law Section of the Bar Association of San Francisco.

Blogs: Trust, estate/probate, power of attorney, conservatorship, elder and dependent adult abuse, nursing home and care, disability, discrimination, personal injury, responsibilities and rights, and other related litigation, and contentious administrations http://californiaestatetrust.com; Business, D&O, board, director, audit committee, shareholder, founder, owner, and investor litigation, governance, responsibilities and rights, compliance, investigations, and risk management  http://auditcommitteeupdate.com

The following are copies of the tables of contents of three of the more formal materials that I have written over the years about accounting/auditing, audit committees, and related legal topics – Accounting and Its Legal Implications was my first formal effort, which resulted in a published book that had more of an accounting and auditing focus; Chapter 5A, Audit Committee Functions and Responsibilities, for the California Continuing Education of the Bar has a more legal focus; and the most recent Tate’s Excellent Audit Committee Guide (February 2017) also has a more legal focus:

Accounting and Its Legal Implications

Chapter 5A, Audit Committee Functions and Responsibilities, CEB Advising and Defending Corporate Directors and Officers

Tate’s Excellent Audit Committee Guide

The following are other summary materials that you might find useful:

OVERVIEW OF A RISK MANAGEMENT PROCESS THAT YOU CAN USE 03162018

Audit Committee 5 Lines of Success, Diligence, and Defense - David Tate, Esq, 05052018

COSO Enterprise Risk Management Framework ERM Components and Principles

From a prior blog post which you can find at https://wp.me/p75iWX-dk if the below scan is too difficult to read:

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Does your government’s sustainability policy encourage and support businesses and jobs to start and stay?

Reading through a few of the local county and California sustainability policy statements, I’m not seeing policies or processes to encourage and support businesses and jobs to start and stay. Without jobs and businesses you lose your economy, people, and tax revenues to other locations. If you lose enough of them, other sustainability efforts will suffer or fail.

Below is an example of one county’s overview of its sustainability policies and efforts. No mention of businesses. Some government sustainability policies do mention businesses; however, in most or many of those circumstances the emphasis is limited to having or forcing the businesses comply with the other sustainability policies and areas – in other words, not an effort to encourage and support businesses and jobs to start and stay.

I have a different view – in addition to the environment, transportation, housing, and other areas, all of which I encourage, a government’s sustainability, ESG, and enterprise risk management (ERM) policies and efforts should specifically include encouraging and supporting businesses and jobs to start and stay.

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Remember, every case and situation is different. It is important to obtain and evaluate all of the evidence that is available, and to apply that evidence to the applicable standards and laws. You do need to consult with an attorney and other professionals about your particular situation. This post is not a solicitation for legal or other services inside of or outside of California, and, of course, this post only is a summary of information that changes from time to time, and does not apply to any particular situation or to your specific situation. So . . . you cannot rely on this post for your situation or as legal or other professional advice or representation.

Thank you for reading this website. I ask that you also pass it along to other people who would be interested as it is through collaboration that great things and success occur more quickly.

Best to you, David Tate, Esq. (and inactive California CPA) – practicing in California only.

I am also the Chair of the Business Law Section of the Bar Association of San Francisco.

Blogs: Trust, estate/probate, power of attorney, conservatorship, elder and dependent adult abuse, nursing home and care, disability, discrimination, personal injury, responsibilities and rights, and other related litigation, and contentious administrations http://californiaestatetrust.com; Business, D&O, board, director, audit committee, shareholder, founder, owner, and investor litigation, governance, responsibilities and rights, compliance, investigations, and risk management  http://auditcommitteeupdate.com

The following are copies of the tables of contents of three of the more formal materials that I have written over the years about accounting/auditing, audit committees, and related legal topics – Accounting and Its Legal Implications was my first formal effort, which resulted in a published book that had more of an accounting and auditing focus; Chapter 5A, Audit Committee Functions and Responsibilities, for the California Continuing Education of the Bar has a more legal focus; and the most recent Tate’s Excellent Audit Committee Guide (February 2017) also has a more legal focus:

Accounting and Its Legal Implications

Chapter 5A, Audit Committee Functions and Responsibilities, CEB Advising and Defending Corporate Directors and Officers

Tate’s Excellent Audit Committee Guide

The following are other summary materials that you might find useful:

OVERVIEW OF A RISK MANAGEMENT PROCESS THAT YOU CAN USE 03162018

Audit Committee 5 Lines of Success, Diligence, and Defense - David Tate, Esq, 05052018

COSO Enterprise Risk Management Framework ERM Components and Principles

From a prior blog post which you can find at https://wp.me/p75iWX-dk if the below scan is too difficult to read:

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California employee, anti-gig, anti-contractor economy legislation – effect on independent truckers and others – need legal advice?

I saw a news article yesterday about the effect that the California legislation classifying more workers as employees might have on independent truckers. It brings to mind whether the Legislature considered the entire impact of the legislation on the different types of work and businesses, and the different worker areas.

The legislation has the potential to impact a lot of different worker stakeholders. Mind you, I have no personal knowledge about the effect of the legislation on independent truckers, but the regular news story represented that the legislation will or might impact all independent truckers who haul loads in California and the businesses that hire them.

The story reported that currently independent truckers often are paid at much higher rates or twice the rate of employee truckers, although the independent truckers also have to bear the cost of operating their rigs and businesses, and might not be paid benefits by the businesses that hire them. The bottom line is that very soon independent truckers might not be able to operate as independent contractors in California. Certainly, as with all new legislation or new case law, this becomes an area of law upon which those people and businesses that are impacted, in this circumstance independent truckers and the businesses that hire them, might well need legal advice and representation.

And I am sure that the legislation will also impact a whole host of other workers and the businesses that hire them.

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Remember, every case and situation is different. It is important to obtain and evaluate all of the evidence that is available, and to apply that evidence to the applicable standards and laws. You do need to consult with an attorney and other professionals about your particular situation. This post is not a solicitation for legal or other services inside of or outside of California, and, of course, this post only is a summary of information that changes from time to time, and does not apply to any particular situation or to your specific situation. So . . . you cannot rely on this post for your situation or as legal or other professional advice or representation.

Thank you for reading this website. I ask that you also pass it along to other people who would be interested as it is through collaboration that great things and success occur more quickly.

Best to you, David Tate, Esq. (and inactive California CPA) – practicing in California only.

I am also the Chair of the Business Law Section of the Bar Association of San Francisco.

Blogs: Trust, estate/probate, power of attorney, conservatorship, elder and dependent adult abuse, nursing home and care, disability, discrimination, personal injury, responsibilities and rights, and other related litigation, and contentious administrations http://californiaestatetrust.com; Business, D&O, board, director, audit committee, shareholder, founder, owner, and investor litigation, governance, responsibilities and rights, compliance, investigations, and risk management  http://auditcommitteeupdate.com

The following are copies of the tables of contents of three of the more formal materials that I have written over the years about accounting/auditing, audit committees, and related legal topics – Accounting and Its Legal Implications was my first formal effort, which resulted in a published book that had more of an accounting and auditing focus; Chapter 5A, Audit Committee Functions and Responsibilities, for the California Continuing Education of the Bar has a more legal focus; and the most recent Tate’s Excellent Audit Committee Guide (February 2017) also has a more legal focus:

Accounting and Its Legal Implications

Chapter 5A, Audit Committee Functions and Responsibilities, CEB Advising and Defending Corporate Directors and Officers

Tate’s Excellent Audit Committee Guide

The following are other summary materials that you might find useful:

OVERVIEW OF A RISK MANAGEMENT PROCESS THAT YOU CAN USE 03162018

Audit Committee 5 Lines of Success, Diligence, and Defense - David Tate, Esq, 05052018

COSO Enterprise Risk Management Framework ERM Components and Principles

From a prior blog post which you can find at https://wp.me/p75iWX-dk if the below scan is too difficult to read:

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The California business judgment rule statutes for corporations, nonprofits, and religious organizations, for your ease of reading and reference

For your ease of reading and reference, the following are the California business judgment rule statutes for:

Corporations – Cal. Corp. Code §309;

Nonprofit public benefit corporations – Cal. Corp. Code §5231;

Nonprofit mutual benefit corporations – Cal. Corp. Code §7231 (and see also §7231.5); and

Nonprofit religious corporations – Cal. Corp. Code §9241 (and see also §9240(c)).

The business judgment rule is state specific – see, for example, Del. Gen. Corp. Law §141 for Delaware corporations, in addition to relevant case law.

Also note that the statutory business judgment rule differs some for corporations, nonprofit public benefit corporations, nonprofit mutual benefit corporations, and nonprofit religious corporations.

Why am I posting this information? Because the business judgment rule is a good rule for people to follow, and to consider, in public company, private business, nonprofit organization, and governmental entity settings and situations. And in this context, when I refer to “people,” I am not referring only to directors, but also to officers, managers and all people throughout the organization. Note: I am not representing that all of these people are legally required to follow the business judgment rule – indeed, the rule is merely a possible defense to liability and possibly relevant to the burden of proof for the people to which it applies and who fact follow the rule – for other people, in the context of this post I am merely suggesting that all people should consider following the rule, or at least keep it in mind as possible guidance in a multitude of public company, private business, nonprofit organization, and governmental entity settings and situations.

Also note that I underlined the provisions below that are underlined (that is, the wording below that is underlined is not underlined in the actual statute).

California Corporations Code Section 309, for corporations:

(a) A director shall perform the duties of a director, including duties as a member of any committee of the board upon which the director may serve, in good faith, in a manner such director believes to be in the best interests of the corporation and its shareholders and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.

(b) In performing the duties of a director, a director shall be entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by any of the following:

(1) One or more officers or employees of the corporation whom the director believes to be reliable and competent in the matters presented.

(2) Counsel, independent accountants or other persons as to matters which the director believes to be within such person’s professional or expert competence.

(3) A committee of the board upon which the director does not serve, as to matters within its designated authority, which committee the director believes to merit confidence, so long as, in any such case, the director acts in good faith, after reasonable inquiry when the need therefor is indicated by the circumstances and without knowledge that would cause such reliance to be unwarranted.

(c) A person who performs the duties of a director in accordance with subdivisions (a) and (b) shall have no liability based upon any alleged failure to discharge the person’s obligations as a director. In addition, the liability of a director for monetary damages may be eliminated or limited in a corporation’s articles to the extent provided in paragraph (10) of subdivision (a) of Section 204.

(Amended by Stats. 1987, Ch. 1203, Sec. 2. Effective September 27, 1987.)

California Corporations Code Section 5231, for nonprofit public benefit corporations:

(a) A director shall perform the duties of a director, including duties as a member of any committee of the board upon which the director may serve, in good faith, in a manner that director believes to be in the best interests of the corporation and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.

(b) In performing the duties of a director, a director shall be entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by:

(1) One or more officers or employees of the corporation whom the director believes to be reliable and competent in the matters presented;

(2) Counsel, independent accountants or other persons as to matters which the director believes to be within that person’s professional or expert competence; or

(3) A committee upon which the director does not serve that is composed exclusively of any or any combination of directors, persons described in paragraph (1), or persons described in paragraph (2), as to matters within the committee’s designated authority, which committee the director believes to merit confidence, so long as, in any case, the director acts in good faith, after reasonable inquiry when the need therefor is indicated by the circumstances and without knowledge that would cause that reliance to be unwarranted.

(c) Except as provided in Section 5233, a person who performs the duties of a director in accordance with subdivisions (a) and (b) shall have no liability based upon any alleged failure to discharge the person’s obligations as a director, including, without limiting the generality of the foregoing, any actions or omissions which exceed or defeat a public or charitable purpose to which a corporation, or assets held by it, are dedicated.

(Amended by Stats. 2009, Ch. 631, Sec. 14. (AB 1233) Effective January 1, 2010.)

California Corporations Code Section 7231, for nonprofit mutual benefit corporations:

(a) A director shall perform the duties of a director, including duties as a member of any committee of the board upon which the director may serve, in good faith, in a manner such director believes to be in the best interests of the corporation and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.

(b) In performing the duties of a director, a director shall be entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by:

(1) One or more officers or employees of the corporation whom the director believes to be reliable and competent in the matters presented;

(2) Counsel, independent accountants or other persons as to matters which the director believes to be within such person’s professional or expert competence; or

(3) A committee upon which the director does not serve that is composed exclusively of any or any combination of directors, persons described in paragraph (1), or persons described in paragraph (2), as to matters within the committee’s designated authority, which committee the director believes to merit confidence, so long as, in any case, the director acts in good faith, after reasonable inquiry when the need therefor is indicated by the circumstances and without knowledge that would cause such reliance to be unwarranted.

(c) A person who performs the duties of a director in accordance with subdivisions (a) and (b) shall have no liability based upon any alleged failure to discharge the person’s obligations as a director, including, without limiting the generality of the foregoing, any actions or omissions which exceed or defeat a public or charitable purpose to which assets held by a corporation are dedicated.

(Amended by Stats. 2009, Ch. 631, Sec. 24. (AB 1233) Effective January 1, 2010.)

See also Cal. Corp. Code §7231.5:

(a) Except as provided in Section 7233 or 7236, there is no monetary liability on the part of, and no cause of action for damages shall arise against, any volunteer director or volunteer executive officer of a nonprofit corporation subject to this part based upon any alleged failure to discharge the person’s duties as a director or officer if the duties are performed in a manner that meets all of the following criteria:

(1) The duties are performed in good faith.

(2) The duties are performed in a manner such director or officer believes to be in the best interests of the corporation.

(3) The duties are performed with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.

(b) “Volunteer” means the rendering of services without compensation. “Compensation” means remuneration whether by way of salary, fee, or other consideration for services rendered. However, the payment of per diem, mileage, or other reimbursement expenses to a director or executive officer does not affect that person’s status as a volunteer within the meaning of this section.

(c) “Executive officer” means the president, vice president, secretary, or treasurer of a corporation or other individual serving in like capacity who assists in establishing the policy of the corporation.

(d) This section shall apply only to trade, professional, and labor organizations incorporated pursuant to this part which operate exclusively for fraternal, educational, and other nonprofit purposes, and under the provisions of Section 501(c) of the United States Internal Revenue Code.

(e) This section shall not be construed to limit the provisions of Section 7231.

(Amended by Stats. 1990, Ch. 107, Sec. 5.)

California Corporations Code Section 9241, for nonprofit religious corporations:

(a) A director shall perform the duties of a director, including duties as a member of any committee of the board upon which the director may serve, in good faith, in a manner such director believes to be in the best interests of the corporation and with such care, including reasonable inquiry, as is appropriate under the circumstances.

(b) In performing the duties of a director, a director shall be entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, in each case prepared or presented by:

(1) One or more officers or employees of the corporation whom the director believes to be reliable and competent in the matters presented;

(2) Counsel, independent accountants, or other persons as to matters which the director believes to be within that person’s professional or expert competence;

(3) A committee upon which the director does not serve that is composed exclusively of any or any combination of directors, persons described in paragraph (1), or persons described in paragraph (2), as to matters within the committee’s designated authority, which committee the director believes to merit confidence; or

(4) Religious authorities and ministers, priests, rabbis, or other persons whose position or duties in the religious organization the director believes justify reliance and confidence and whom the director believes to be reliable and competent in the matters presented, so long as, in any case, the director acts in good faith, after reasonable inquiry when the need therefor is indicated by the circumstances, and without knowledge that would cause that reliance to be unwarranted.

(c) The provisions of this section, and not Section 9243, shall govern any action or omission of a director in regard to the compensation of directors, as directors or officers, or any loan of money or property to or guaranty of the obligation of any director or officer. No obligation, otherwise valid, shall be voidable merely because directors who benefited by a board resolution to pay such compensation or to make such loan or guaranty participated in making such board resolution.

(d) Except as provided in Section 9243, a person who performs the duties of a director in accordance with subdivisions (a) and (b) shall have no liability based upon any alleged failure to discharge his or her obligations as a director, including, without limiting the generality of the foregoing, any actions or omissions which exceed or defeat any purpose to which the corporation, or assets held by it, may be dedicated.

(Amended by Stats. 2009, Ch. 631, Sec. 33. (AB 1233) Effective January 1, 2010.)

See also Cal. Corp. Code §9240(c):

(c) A director, in making a good faith determination, may consider what the director believes to be:

(1) The religious purposes of the corporation; and

(2) Applicable religious tenets, canons, laws, policies, and authority.

(Amended by Stats. 1987, Ch. 923, Sec. 1.4. Operative January 1, 1988, by Sec. 103 of Ch. 923.)

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Remember, every case and situation is different. It is important to obtain and evaluate all of the evidence that is available, and to apply that evidence to the applicable standards and laws. You do need to consult with an attorney and other professionals about your particular situation. This post is not a solicitation for legal or other services inside of or outside of California, and, of course, this post only is a summary of information that changes from time to time, and does not apply to any particular situation or to your specific situation. So . . . you cannot rely on this post for your situation or as legal or other professional advice or representation.

Thank you for reading this website. I ask that you also pass it along to other people who would be interested as it is through collaboration that great things and success occur more quickly.

Best to you, David Tate, Esq. (and inactive California CPA) – practicing in California only.

I am also the Chair of the Business Law Section of the Bar Association of San Francisco.

Blogs: Trust, estate/probate, power of attorney, conservatorship, elder and dependent adult abuse, nursing home and care, disability, discrimination, personal injury, responsibilities and rights, and other related litigation, and contentious administrations http://californiaestatetrust.com; Business, D&O, board, director, audit committee, shareholder, founder, owner, and investor litigation, governance, responsibilities and rights, compliance, investigations, and risk management  http://auditcommitteeupdate.com

The following are copies of the tables of contents of three of the more formal materials that I have written over the years about accounting/auditing, audit committees, and related legal topics – Accounting and Its Legal Implications was my first formal effort, which resulted in a published book that had more of an accounting and auditing focus; Chapter 5A, Audit Committee Functions and Responsibilities, for the California Continuing Education of the Bar has a more legal focus; and the most recent Tate’s Excellent Audit Committee Guide (February 2017) also has a more legal focus:

Accounting and Its Legal Implications

Chapter 5A, Audit Committee Functions and Responsibilities, CEB Advising and Defending Corporate Directors and Officers

Tate’s Excellent Audit Committee Guide

The following are other summary materials that you might find useful:

OVERVIEW OF A RISK MANAGEMENT PROCESS THAT YOU CAN USE 03162018

Audit Committee 5 Lines of Success, Diligence, and Defense - David Tate, Esq, 05052018

COSO Enterprise Risk Management Framework ERM Components and Principles

From a prior blog post which you can find at https://wp.me/p75iWX-dk if the below scan is too difficult to read:

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Just a snapshot of the NASDAQ ESG Reporting Guide 2.0 ESG Metrics

Below is a snapshot of the NASDAQ ESG metrics from the May 2019 NASDAQ ESG Reporting Guide 2.0. Pursuant to the Guide, the metrics were significantly developed or decided upon based on existing United Nations ESG materials. Viewing ESG from a worldwide perspective, focusing more significantly on metrics that are contained in United Nations materials could be one reasonable approach. However, from a US listed company perspective, I would have kept some of those metrics, and replaced some with other metrics that are perhaps more pertinent and diverse. As the Guide states, the metrics that NASDAQ selected are not required or mandated metrics.

There is the snapshot:

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Remember, every case and situation is different. It is important to obtain and evaluate all of the evidence that is available, and to apply that evidence to the applicable standards and laws. You do need to consult with an attorney and other professionals about your particular situation. This post is not a solicitation for legal or other services inside of or outside of California, and, of course, this post only is a summary of information that changes from time to time, and does not apply to any particular situation or to your specific situation. So . . . you cannot rely on this post for your situation or as legal or other professional advice or representation.

Thank you for reading this website. I ask that you also pass it along to other people who would be interested as it is through collaboration that great things and success occur more quickly.

Best to you, David Tate, Esq. (and inactive California CPA) – practicing in California only.

I am also the Chair of the Business Law Section of the Bar Association of San Francisco.

Blogs: Trust, estate/probate, power of attorney, conservatorship, elder and dependent adult abuse, nursing home and care, disability, discrimination, personal injury, responsibilities and rights, and other related litigation, and contentious administrations http://californiaestatetrust.com; Business, D&O, board, director, audit committee, shareholder, founder, owner, and investor litigation, governance, responsibilities and rights, compliance, investigations, and risk management  http://auditcommitteeupdate.com

The following are copies of the tables of contents of three of the more formal materials that I have written over the years about accounting/auditing, audit committees, and related legal topics – Accounting and Its Legal Implications was my first formal effort, which resulted in a published book that had more of an accounting and auditing focus; Chapter 5A, Audit Committee Functions and Responsibilities, for the California Continuing Education of the Bar has a more legal focus; and the most recent Tate’s Excellent Audit Committee Guide (February 2017) also has a more legal focus:

Accounting and Its Legal Implications

Chapter 5A, Audit Committee Functions and Responsibilities, CEB Advising and Defending Corporate Directors and Officers

Tate’s Excellent Audit Committee Guide

The following are other summary materials that you might find useful:

OVERVIEW OF A RISK MANAGEMENT PROCESS THAT YOU CAN USE 03162018

Audit Committee 5 Lines of Success, Diligence, and Defense - David Tate, Esq, 05052018

COSO Enterprise Risk Management Framework ERM Components and Principles

From a prior blog post which you can find at https://wp.me/p75iWX-dk if the below scan is too difficult to read:

* * * * *