If you own stock in a corporation, it is important that you are educated about your rights as a shareholder. Even if you have ownership rights through an investment of capital in a corporation that is not publicly traded, questions can still arise about shareholder rights. One of the most significant of these questions is: Who is responsible for protecting my rights as a shareholder?
The short answer is the directors of the corporation. It is a common misconception that it is the corporate entity that is responsible for protecting shareholders’ rights, but, in fact, the directors of a corporation are the individuals who have this duty.
Understanding Fiduciary Duty
A fiduciary duty is the duty to protect one’s property or money. The fiduciary is someone (a person and not a corporate entity) who has taken on the responsibility of protecting property or money. A shareholder in a corporation has the protection of a fiduciary relationship in which the directors of the corporation owe the investor, or shareholder, a fiduciary duty. There are several forms of fiduciary relationships, not only the duty between corporate directors and shareholders. A few of the most common fiduciary relationships are:
- Partnership Fiduciary Duties
- Duties of Trustees
- Agency Duties
- Fiduciary Duties of Estate Representatives
- Fiduciary Duties of Stockbrokers and Investment Advisers
- Fiduciary Duties of Real Estate Agents and Brokers
- Fiduciary Duties Under ERISA
- Fiduciary Duties of Lenders
- Fiduciary Duties of the Church and Its Representatives
- Fiduciary Duties of Professionals, such as Attorneys
Courts have held that the corporate entity itself does not owe a fiduciary duty to its shareholders, but rather the company directors who act on behalf of the company hold this responsibility. A California court recently reiterated this principle in the case of Buttonwood Tree Value Partners LP vs. R.L. Polk & Co. The plaintiffs in Buttonwood sued both the corporation and the individual directors of the corporation, claiming that they breached their fiduciary duties by inducing shareholders to sell their stocks at a lower value than their true worth.
The court dismissed the action against the corporate entity and issued a letter opinion in which they re-emphasized the principle of law that a corporation does not owe shareholders this duty, though the directors do.
Milwaukee Corporate Law Attorneys
If you are experiencing issues with a corporation in which you are a shareholder, it is always prudent to have legal counsel review the situation. The corporate law attorneys at Kerkman Wagner & Dunn have been advising shareholders in Milwaukee since 1983. Our experience and reputation are just two of the reasons that our clients keep us close in their business affairs. Contact us to schedule an appointment for a confidential consultation.