While major shareholders generally don’t get involved in the day-to-day business operations, they do have a financial interest. They may also have a significant say in key big-picture decisions.
Shareholders are also fiduciaries. This means they must act in the best interests of the company. What are the fiduciary duties of major shareholders?
Putting the business first
Fiduciary duties refer to legal obligations requiring shareholders to act in good faith, with loyalty and care. In the corporate world, shareholders with a controlling interest or significant influence must prioritize the company’s well-being over personal gain. These duties help maintain trust and prevent actions that could harm the business or minority shareholders.
Key fiduciary responsibilities of shareholders
Not all shareholders owe fiduciary duties, but those with substantial control must adhere to specific obligations, including:
- Duty of loyalty: Controlling shareholders must act in the best interests of the company, avoiding conflicts of interest or self-dealing that benefits them at the expense of others.
- Duty of care: They must make informed decisions, exercise due diligence and avoid reckless actions that could harm the business.
- Duty of fair dealing: Transactions involving controlling shareholders must be transparent and fair to all shareholders. This prevents manipulation or oppressive actions against minority shareholders.
If a controlling shareholder violates their fiduciary duties, they can face legal consequences, including lawsuits and financial liability. Minority shareholders may seek legal remedies if they suffer damages due to unfair practices. Courts often scrutinize actions that appear self-serving or harmful to the company’s interests.
Seeking legal guidance can help you learn more about fiduciary duties or settle a shareholder dispute if necessary.