Do Officers Owe Fiduciary Duties to Their Company?
There are some who apparently think that officers of a corporation do not owe fiduciary duties to the company. This is simply wrong.
For example, under Minnesota Statutes section 302A.255, officers have a duty to act “in good faith” and “in the best interests of the corporation.” This duty of loyalty prohibits directors and officers from self-dealing and from taking actions in conflict with the interests of the corporation. For example, the Minnesota Supreme Court has held that officers cannot appropriate to themselves opportunities that rightfully belong to the corporation. See Matter of Milla Maria, Inc., 312 N.W.2d 921, 922 (Minn. 1981).
At the most basic level, violation of these duties results in compensatory repayment to other business owners for misbegotten profits. But violations may also result in an award of attorney fees, court costs, and even court-ordered terms of dissolution taking into account the fact that an officer “acted fraudulently or illegally.” See Minn. Stat. § 302A.751.
In fact, intentional fraud against the corporation and co-owners can result in an award of punitive damages that goes far beyond a mere compensatory award. Under Minnesota Statutes section 549.20, punitive damages are permitted with the requisite showing of “deliberate disregard for the rights…of others.” A judge or jury considering an award of punitive damages under the statute is instructed to weigh, among other factors, the following:
- the profitability of the misconduct to the defendant,
- the duration of the misconduct and any concealment of it,
- the degree of the defendant’s awareness of the hazard and of its excessiveness, [and]
- the attitude and conduct of the defendant upon discovery of the misconduct.
If you are an officers of a corporation, including president, CEO, secretary, or treasurer, understanding your legal rights and duties is critical. Likewise, shareholders are entitled to have officers in the corporation who uphold the law and put the interests of the corporation before their own.