In summary California Corporations Code Section 309 basically states the business judgment rule from a California statutory perspective, for directors (and more often also for officers as determined by Courts and regulatory agencies). The following are a link to Section 309, the statutory wording of Section 309, and an answer by ChatGPT 4 when asked to write Section 309 at a ninth grade level (why did I use the ninth grade level – because often laws, statutes and regulations are written in convoluted legalese and shouldn’t be, and aren’t understood or clear or complete).

Link to Cal. Corp. Code Section 309: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CORP&sectionNum=309.

Statutory wording of Cal. Corp. Code Section 309:

(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.

Query to ChatGPT 4: “write california corporations code section 309 at ninth grade level”

Response by ChatGPT 4:

California Corporations Code Section 309 talks about the responsibilities of directors in a corporation. Here’s a simplified explanation at a ninth-grade reading level:

---

Section 309: Duties of Directors

Directors of a corporation must act in a way that they believe is best for the company and its shareholders. They should:

1. Make Informed Decisions: Directors need to use good judgment, care, and knowledge, like any reasonable person would in a similar position. This means they should learn about the issues they vote on and consider expert advice if needed.
2. Act in Good Faith: Directors must always act honestly and with the company’s best interests in mind. They should not use their role to benefit themselves unfairly or harm the company.
3. Rely on Trusted Sources: Directors can rely on information or advice from employees, professionals (like accountants or lawyers), or committees, as long as they believe these sources are reliable and competent.

If directors follow these rules, they usually won’t be held personally responsible for decisions that don’t turn out well, as long as they acted responsibly and honestly.

Thus, Section 309 can sound pretty clear. But of course it must be applied to the facts and circumstances of each situation, and sometimes directors and officers and other “deciders” don’t communicate well with each other in meetings and in other situations, and sometimes they might need legal help in those situations.

Send me an email if you have legal questions about these issues – if I cannot help you I will try to refer you to another person who might be able to help you. dave@tateattorney.com

I have also attached below scans of my page 1 slides for a definition of the term governance and a simple risk and uncertainty management process:

* * * *

Thank you for viewing this discussion. Please do pass this blog and blog post and information to other people who would be interested as it is only through collaboration and sharing that great things and success are more quickly achieved. If you are interested in discussing anything that I have said in the discussion above or in either of my two blogs (see blog addresses below), or if you simply want to reach out or are seeking assistance, it is best to reach me by email at dave@tateattorney.com.

David Tate, Esq. (and inactive CPA)

Trust, estate, probate, will, fiduciary and elder abuse disputes, litigation, trials and law – probate, trust, estate, will, power of attorney, elder abuse, real property and conservatorship disputes, conflicts and litigation, challenging and contentious administrations, and personalities, people and relationships, mental and physical health, limitations and capacity, undue influence and fraud; and and mediator services.

Business litigation and internal business and co-ownership disputes, litigation, trials and law, and contentious officer, director, board and audit and governance committee, D&O, conflict of interest, workplace, and governance disputes, conflicts and litigation; and mediator services. Legal authority, duties, rights, conflicts of interest, governance, diligence, compliance, legal risk management, and personalities, people and relationships; and mediator services.

Governance, law, legal risk management processes, compliance and success, audits and auditing, internal controls, executive officers, boards, directors, audit and governance committees, investigations, publicity rights, AI, defamation and First Amendment, legislation, statutes and laws, regulations, and headline news, and issue, people and relationship effective meetings, discussions and deliberations, debates and debating, communications, and wording and use of words.

Real property disputes, litigation, trials and law – primarily co-ownership and joint-ownership disputes, conflicts and litigation, and sales and purchases that go wrong, and mediator services.

Mediator and mediator and dispute resolution services (evaluative and facilitative).

• Trust, estate, probate, conservatorship, elder and dependent abuse, etc.

• Business, breach of contract/commercial, owner, shareholder, investor, etc.

• D&O, board, audit and governance committee, accountant and CPA related.

• Other: workplace and employment, environmental, trade secret.

• Law and legal issues relating to authority, duties, rights, conflicts of interest, governance, diligence, compliance, risk management, disputes, evidence, liability, litigation, and mediation and resolution services.

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, or as or for my opinions and views on the subject matter.

Also note – sometimes I include links to or comments about materials from other organizations or people – if I do so, it is because I believe that the materials are worthwhile reading or viewing; however, that does not mean that I do not or that I might not have a different view about some or even all of the subject matter or materials, or that I necessarily agree with, or agree with everything about or relating to, that organization or person, or those materials or the subject matter.

Please also subscribe to this blog and my other blog (see below), and connect with me on LinkedIn and Twitter.

My two blogs are:

http://tateattorney.com – business, D&O, audit committee, governance, compliance, etc. – previously at http://auditcommitteeupdate.com

Trust, estate, conservatorship, elder and elder abuse, etc. litigation and contentious administrations http://californiaestatetrust.com

David Tate, Esq. (and inactive California CPA) – practicing only as an attorney in California.