Guam Corporation Act Amended to Include “Business Judgment Rule”

The new Guam Business Corporation Act went into effect in 2009. The Act was amended in April 2010. The law has received a ho-hum reception from the business community due to the fact that it applies prospectively only, and not to preexisting corporations. However, businesspeople should be generally familiar with the new Act’s key provisions, because existing corporations are permitted to “opt in” to the new Act by amending their corporate documents.

The purpose of the Act was to modernize and simplify Guam’s rather archaic corporation law and bring it into rough conformance with the more flexible provisions of the Model Business Corporation Act (MBCA). The Guam Act generally accomplishes that purpose because most of its provisions closely resemble the corporation law prevailing in the majority of other U.S. jurisdictions that have adopted the MBCA.

However, the Guam Act, as adopted in 2009, omitted certain MBCA provisions. Importantly, the Legislature omitted Section 8.31 of the MBCA, which among other things incorporates what is known as the “Business Judgment Rule”. The Business Judgment Rule is the provision that holds that a corporate director shall not be liable to a corporation or its shareholders unless it is established that the director acted in bad faith, did not reasonably believe the action to be in the best interests of the corporation, or labored under a conflict of interest.This widely-accepted rule in U.S. jurisdictions gives corporate directors the leeway to make difficult and sometimes controversial decisions without having to constantly look over their shoulders for fear of shareholder lawsuits.

In addition to the Business Judgment Rule, the Legislature also inexplicably neglected to adopt the conflict of interest provisions contained in the MBCA.

Recognizing the omission, Legislature passed Bill 325-30 (COR), amending the Guam Business Corporation Act to add the missing MBCA provisions. Guam’s Act now contains the previously omitted MBCA Business Judgment Rule and conflict of interest provisions. Coincidentally, the Governor signed the Bill into law (now known as Public Law 30-124) on the first anniversary of the original Act’s effective date, April 1, 2010 (no fooling).

​Thus, the Guam Act now fully meets is promise of providing more flexibility and a clearer set of guidelines on many situations facing corporations. Guam businesses can now opt into an Act which affords the benefits and protections available in most other U.S. jurisdictions.

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