In corporate governance, what are the fiduciary duties of care and loyalty?

• A. Directors and officers must act with due care (informed decisions) and loyalty (prioritize the corporation’s interests).
• B. Owners must share profits equally.
• C. Managers must avoid risk at all costs.
• D. Investors must disclose personal holdings.

Answer: (B)

The main idea is that directors and officers owe two fiduciary duties: care and loyalty. The duty of care means they must act with due care and diligence, making informed decisions based on adequate information, asking questions, reviewing financials, and seeking appropriate advice before acting. The duty of loyalty requires them to put the corporation’s interests first, avoid conflicts of interest, disclose any potential conflicts, and recuse themselves when a conflict could affect their judgment.

The statement describing directors and officers as needing to act with due care and loyalty captures what these duties are about. The other options describe concepts that aren’t the fiduciary duties in question—for example, profit sharing among owners is about distributions, not a director/officer duty; avoiding all risk is impractical and not the standard of care or loyalty; and investors disclosing personal holdings pertains to transparency requirements but not the specific care-and-loyalty duties.