Fiduciary Obligations of Shareholders and Owners | MN Business Attorney

Owners of closely-held corporations are obligated to act in certain ways with respect to the other owners. These obligations are often called “fiduciary duties.” Owners may be sued and liable for damages if they do not abide by these obligations.

Closely-Held Business Owners Must Act with Integrity and Honesty toward Other Owners

Minnesota closely-held businesses are structured similar to partnerships. Partners in partnerships have similar obligations with respect to other partners. Owners of closely-held businesses in Minnesota are obligated to act with extreme integrity and honesty when dealing with other owners, or shareholders. Owners are supposed to be fair to each other. They are supposed to refrain from hiding information.

Closely-Held Business Owners Must Disclose Certain Information to Other Owners

Closely-held business owners are obligated to share material information about the business with the other owners. In order to determine what information is considered “material information” under the laws of the state of Minnesota, owners should consider several factors:

  1. How probable is it that the event at issue will occur?
  2. What will be the impact of the event if it does occur?
  3. How relevant is the event to the type of business conducted by the company?

These factors should all be considered, but there is no required weight to be given to any individual factor. Other factors may also be taken into consideration.

Why All the Fuss?

There is no ready market in which a shareholder in a closely-held corporation may sell or transfer his or her shares. In other words, minority shareholders will have a difficult time selling their ownership interest or shares in the company. This makes shareholder disputes in closely-held corporations very frustrating to the minority shareholders.

Minnesota Statutes Regarding the Obligations of Closely-Held Business Owners

Minnesota Statute section 302A.751(1)(b)(3) provides minority shareholders with some protection against what is called “unfair prejudice.” When a shareholder has acted unfairly prejudicial toward another shareholder, courts must determine the appropriate remedy.

Minnesota Statute section 302A.751(3a) allows a court to “take into consideration the duty which all shareholders in a closely held corporation owe one another to act in an honest, fair, and reasonable manner in the operation of the corporation and the reasonable expectations of all shareholders as they exist at the inception and develop during the course of the shareholders’ relationship with the corporation and with each other.

Directors and officers act in a manner unfairly prejudicial toward one or more shareholders when they engage in conduct that frustrates the reasonable expectations of all shareholders in their capacity as shareholders or directors of a closely-held corporation.

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