In addition to the fiduciary duties owed by shareholders, fiduciary duties arise by holding a position of director or officer.
A director is required, by statute in Minnesota, to discharge the duties of the position of director in good faith, in a manner the director reasonably believes to be in the best interests of the corporation, and with the care a reasonable person would use under similar circumstances.
An officer is required, by statute in Minnesota, to discharge the duties of an officer in good faith, in a manner the officer reasonably believes to be in the best interests of the corporation, and with the care a reasonable person would use under similar circumstances.
The Basic Duties of Officers and Directors
The duties of officers and directors in closely held corporations often fall into two main categories: (1) the duty of loyalty, and (2) the duty of care. These duties are defined, somewhat broadly, under Minnesota statutes.
While there is a different Minnesota statute controlling duties of officers than the Minnesota statute controlling duties of directors, the duties of officers and directors are largely the same.
If officers and directors follow their duties they will not be liable by reason of being an officer or director.
The Duty of Loyalty
The duty of loyalty encompasses the duty of officers and directors to deal honestly with shareholders. The duty of loyalty also encompasses the duty of officers and directors to act in good faith in their roles as officers and directors. Good faith generally means honest in fact in the conduct concerned.
The fiduciary duties of officers and directors require officers and directors to make disclosures of material information. This includes disclosure of the personal material financial interests of the officers and directors in dealing with the affairs of the corporation. Encompassed in the duty of loyalty is the duty to disclose.
Violations of the duty of loyalty most often arise by self-dealing of officers and directors who are putting their own desires before the interests of the corporation or its shareholders.
The Duty of Care
The fiduciary duty of care requires officers and directors to act in the best interests of the corporation. It does not necessarily require that officers and directors’ judgments be sound.
Courts are reluctant to get involved in the business judgments of corporations’ officers and directors, but do require that they act with the intention of satisfying the goals and best interests of the corporation.