Frequently Asked Questions

  • 1. Do shareholders of closely held corporations have any responsibilities to each other?

    Shareholders of closely held corporations owe each other a fiduciary duty, similar to the duty owed in a partnership, due to the vulnerability of minority shareholders in a closely held corporation. Incidentally, directors of a closely held corporation also owe shareholders a fiduciary duty in addition to their duty to the organization.

    Although some courts have disagreed on the scope, in closely held corporations, shareholders are generally owed a duty of loyalty. Shareholders must act in the best interests of all shareholders, and cannot act in such a way that only their own interests are served. Shareholders are also owed a duty of good faith, requiring fairness in corporate actions. These duties prohibit self-dealing by shareholders and require the highest candor and honesty from them.

    The fiduciary duties owed to other shareholders are usually codified in statute, but they spring from duties developed in the common law.