New Colorado Laws Help Corporations Protect their Board of Directors

April 15, 2020

By: John A. Leonard and John A. Eckstein

Summary: The Colorado Legislature in 2019 enacted a number of amendments to the Act effective on July 1, 2020.  These amendments apply to all for-profit corporations incorporated in Colorado. The substantive amendments affect existing language commonly included in articles of incorporation and bylaws.   Directors and officers of Colorado corporations and attorneys for such corporations should now review the amendments to the Act in light of the existing charter documents and practice of these corporations and make appropriate changes.

Explanation: The amendments to the Act mainly affect Colorado law on directors’ duties and standards of care and standards of and limits on personal liability and on directors’ duties of loyalty in conflicting interest transactions.  Some of the changes tend to give directors more latitude in their decision making, while others tend to reduce the scope of judicial interpretations favoring directors’ discretion. Colorado directors now have explicit additional duties of inquiry and to provide oversight (two items never before addressed by Colorado courts).

In the event that existing language in articles and bylaws is not amended now to conform to the new provisions in the Act, after July 1, 2020 disputes of application and interpretation will likely arise.  The ‘internal affairs’ doctrine of interpretation tends to favor the specific language of a corporation’s charter documents over more general statutory changes; thus directors may not, without changes to the charter documents, be able to take advantage of the benefits conferred by the amendments.

At least one of the amendments affects officers who are not directors. There are also some new, more general provisions providing, for example, for the binding nature of forum selection clauses in the bylaws.

What to Do: It is highly recommended that directors, officers and controlling shareholders consult with their attorneys now in order to consider whether amendments to the articles or bylaws of their Colorado for-profit corporations should be enacted prior to the effective date.