Cadden & Fuller LLP Cadden & Fuller LLP

A Client-Focused Approach to Business and Real Estate Law

Do shareholders have a fiduciary duty to other shareholders?

On Behalf of | Sep 17, 2021 | Business Litigation |

Depending on the size of a corporation, it may have dozens, hundreds or even thousands of shareholders. These shareholders often have their own interests which may run counter to the interests of other shareholders.

Many corporate officers have a fiduciary duty to act in the best interests of shareholders. For most public corporations, shareholders do not owe a fiduciary duty to other shareholders. There are some key exceptions, however.

Closely held corporations

A closely held corporation is one that has only a few shareholders. In these business ventures, shareholders may have a fiduciary duty to one another, as the shareholders of closely held corporations often have close familial or interpersonal relationships. Shareholders may also have a greater opportunity to breach fiduciary duty in closely held companies.

Shareholder directors

Sometimes, shareholders have the right to become directors of a corporation. If this happens, there may be a fiduciary relationship between the shareholder-director and other shareholders. Still, this fiduciary duty may only require the shareholder-director to exercise good business judgment on behalf of the venture.

Controlling shareholders

Finally, there may be a fiduciary duty between controlling shareholders and minority ones. This duty makes sense, as controlling shareholders often have the power to take action without the support of or over the objection of minority shareholders.

The existence of a fiduciary relationship is only one element in proving a breach of fiduciary duty has occurred, of course. Ultimately, while the non-existence of a fiduciary obligation may allow a defendant to move for dismissal, plaintiffs must prove all other elements for their claims to be successful.