DO I OWE MY FELLOW SHAREHOLDER(S) ANY DUTIES?

A frequently asked question for closely held corporation shareholders is whether the shareholders owe each other any fiduciary duties?  The answer is yes.  

In a closely held corporation, defined as a corporation with 35 or fewer shareholders, shareholders owe a duty to deal openly, honestly and fairly with other shareholders.  If you are a controlling shareholder in a closely held corporation, you owe a duty to act in an honest, fair and reasonable manner in the operation of the corporation.  This requires you to exercise the highest standard of integrity and good faith in your dealings with other shareholders.

If, on the other hand, you are a noncontrolling shareholder, your duties are less, at least if you lack any significant ability to control the corporate decision-making.  That said, all close corporation shareholders have an obligation not to engage in oppressive or unfair negotiating tactics that may otherwise conform to the rough morals of the marketplace.  Each shareholder also owes a duty to refrain from arbitrarily exercising discretion or veto power and a duty of loyalty, which encompasses an obligation to act with complete candor in negotiations with each other.

Understanding what duties you owe and, conversely, what duties are owed to you, is extremely important to ensure you are treated fairly and are treating your fellow shareholders and the corporation fairly.