When a director or officer of a corporation breaches a duty owed to the corporation, a shareholder may be able to recover damages and punish the offending director. Directors can be held personally liable for losses sustained by the corporation when they overstep their bounds in making decisions. Georgia law requires that a director or officer act in the utmost good faith when making corporate decisions. The standard of care a director must meet is the same as an ordinarily prudent person in a similar position. Thus, each act or omission at issue requires an examination of many facts surrounding the case. The size and complexity of a corporation are important features to consider. Additionally, the information known to the director at the time a decision was made will be factored into the equation, and the director's unique background and qualifications will also be taken into account. However, even a director with no business experience must still exercise the common sense and informed judgment of an ordinarily prudent person.

In addition, there are times when directors must disclose information to shareholders. For example, directors have a duty to shareholders when they are selling or buying stock from shareholders. Georgia law requires a director to disclose all facts that may affect the value of stock that the director learned of through his or her office as director. Failure to disclose information may be considered fraudulent and render the sale of stock void. However, a lack of disclosure may not constitute fraud when the shareholder has equal access to the information but does not exercise ordinary prudence in discovering the facts.

A director generally cannot seize a business opportunity that belongs to the corporation in many situations. Directors are also sometimes forbidden from entering into transactions with the corporation due to the director's conflicting personal and corporate interests. The exception in both cases is if the director takes appropriate steps to ensure that the corporation has allowed for such activities. Other acts such as inattention to duties, fraud, misappropriation of assets, and certain criminal actions may hold a director liable as well and even allow for punitive damages. There are many other activities which a director may be held liable for, and an experienced attorney should be consulted to discuss if a director has breached a duty owed to a corporation and its shareholders

When a shareholder brings an action, two types of suits are possible: direct and derivative. Direct actions involve a shareholder's own personal rights or interests such as inspecting company books or recovering dividends. Derivative actions occur when a shareholder sues in the name of the corporation to enforce claims against officers and directors who have harmed the corporation as a whole. For example, claims for misappropriation and waste of corporate assets, fraud, and violating the corporate opportunity rule will normally require a shareholder to file a derivative action. In derivative actions, the shareholder bringing the suit is considered to be a nominal party, and any award will generally go to the corporation with the exception of some costs for bringing the suit. If shareholders were not allowed to bring derivative claims, they would be at the mercy of the directors in authorizing an action against one or more of the directors. Since directors are unlikely to authorize a corporation to bring suit against themselves, derivative suits are one way to keep directors honest.

Each shareholder litigation claim is unique. What a plaintiff must show will depend on whether federal or state law is being used, the nature of the breach, and the specific circumstances of each action or omission. Generally, there is a presumption that a director or officer acted in good faith, was informed about the decisions they made, and that the action was in the best interest of the company. This presumption must be rebutted by the plaintiff in order to hold the director or officer personally liable. The plaintiff must do this by proffering specific facts which show that the director or officer engaged in some type of fraud, illegal dealings, bad faith, or abuse of their discretion.

Directors and officers have a large number of defenses to avoid liability. To begin with, they are protected by the presumption that they did act in the best interest of their company. Additionally, Georgia allows for a corporation to eliminate or limit the liability of a director for monetary damages in many situations. Whether monetary damages can be awarded in these situations depends entirely upon a corporation's articles of incorporation. However, this limit on monetary awards does not apply in some situations such as when a director receives an improper personal benefit or knowingly violates the law. Many other defenses may exist depending on the specific circumstances of each case. An experienced Atlanta attorney should be consulted to combat these defenses and protect your rights as a shareholder.

The information provided above is a very general summary of the law regarding this particular legal issue at the time this text was prepared. Because this analysis is subject to change depending upon recent cases and developments, you should not rely on this summary as legal advice. As with any important legal question, you should always consult with a lawyer licensed to practice in your jurisdiction. Our lawyers are licensed to practice in all Georgia state and federal courts.