Duties of Controlling Shareholders: The Special Case of the Majority Shareholder

In many corporations, directors and officers bear the duties owed to the corporation, while being held accountable to the shareholders. In other corporations, including many closely-held corporations, some individuals may have authority due to the simple fact that they own a majority of the shares. These majority shareholders can essentially run the company because they control every vote. However, as the old adage goes, with great power comes great responsibility. Therefore, controlling shareholders must be aware of their duties in relation to their power.

Controlling shareholders are liable because companies with controlling shareholders will signal alarms that the company may not be acting in its best financial interests. Instead, companies with controlling shareholders may signal that they are acting in the best interests of that shareholder and not the company as a whole. In some situations, it is not just controlling shareholders that are held liable. In many instances, large shareholders will be held just as liable as controlling shareholders. This is because it is believed that minority shareholders can be manipulated with promises.

There are several recognized duties of a majority shareholder. One such duty is the duty to disclose. A controlling shareholder cannot find out secret information and use it to their advantage by doing things like purchasing more stock or selling their stock. Further, there are certain actions the corporation must take when there is a controlling shareholder. One example is when a controlling shareholder causes the corporation to repurchase his share, the corporation must also offer the other shareholders the chance to sell the ratable number of shares to the corporation at the same price.

This is a cursory introduction into the duties of a controlling shareholder. The fact is, both the corporation and controlling shareholders need to be aware that there are special rules that apply to these situations. Controlling shareholders may have already violated their duties to the corporation without realizing it. Contact the Trembly Law Firm at (305) 431-5678 to schedule a consultation.