A3616

An Act concerning liability of corporate directors and amending N.J.S.14A:6-14.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. N.J.S.14A:6-14 is amended to read as follows:

14A:6-14. Liability of directors; reliance on records and reports.

(1) Directors and members of any committee designated by the board shall discharge their duties in good faith and with that degree of diligence, care and skill which ordinarily prudent people would exercise under similar circumstances in like positions.

(2) In discharging their duties, directors and members of any committee designated by the board shall not be liable if, acting in good faith, they rely

(a) Upon [the opinion of counsel for] information, opinions, reports or statements presented to the board by an officer or employee of the corporation;

(b) Upon [written reports setting forth financial data concerning the corporation and prepared by an independent public accountant or certified public accountant or firm of such accountants] information, opinions, reports, financial statements or data or other statements presented to the board by any person if the director or member believes that the matters presented are within that person’s professional and expert competence;

(c) Upon [financial statements, books of account or reports of the corporation represented to them to be correct by the president, the officer of the corporation having charge of its books of account, or the person presiding at a meeting of the board] the records of the corporation; or

(d) Upon written reports of committees of the board.

(3) A director shall not be personally liable to the corporation or its shareholders for damages for breach of duty as a director if and to the extent that such liability has been eliminated or limited by a provision in the certificate of incorporation authorized by subsection (3) of N.J.S. 14A:2-7.

(4) In taking action, including, without limitation, action which may involve or relate to a change or potential change in the control of the corporation, a director shall be entitled to consider, without limitation, both the long-term and the short-term interests of the corporation and its shareholders. For the purpose of this subsection, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of
the corporation, whether through the ownership of voting shares, by contract or otherwise.

(cf: P.L.1989, c.17, s.3)

2. This act shall take effect immediately.

STATEMENT

This bill modifies a provision of the “New Jersey Business Corporation Act” concerning the liability of corporate directors and, in particular, their good faith reliance on certain information.

Current law provides that corporate directors and members of any committee designated by the board shall not be liable if, acting in good faith, they rely upon certain information including:

(1) the opinion of counsel for the corporation;

(2) written reports setting forth financial data concerning the corporation and prepared by an independent public accountant or certified public accountant or firm of such accountants; and

(3) financial statements, books of account or reports of the corporation represented to them to be correct by the president, the officer of the corporation having charge of its books of account, or the person presiding at a meeting of the board.

These provisions would be replaced with immunity from liability for good faith reliance upon:

(1) information, opinions, reports or statements presented to the board by an officer or employee of the corporation;

(2) information, opinions, reports, financial statements or data or other statements presented to the board by any person if the director or member believes that the matters presented are within that person’s professional and expert competence; and

(3) the records of the corporation.

Current law regarding good faith reliance on written reports of committees of the board would remain the same.

This bill is a proposal of The New Jersey Corporate and Business Law Study Commission.