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Shareholder Disputes

What Duties Does a Minority Shareholder/Employee Owe Following a Wrongful "Freeze Out"?

As discussed in a previous blog post, a well-drafted shareholder or employee agreement is extremely important to clarify the rights and duties of an employee who is also a minority shareholder of a Massachusetts close corporation.  The need for a clear agreement is especially important if there is a dispute concerning the termination of a minority shareholder/employee.  Where no agreement exists, or if the applicable agreement does not entirely govern the rights and duties of the parties in a particular situation, the obligations are governed by their fiduciary duties to each other, which may be unclear depending on the circumstances.

Avoiding Legal Pitfalls When Employees Are Also Minority Shareholders

It is well recognized that the shareholders of a Massachusetts close corporation are fiduciaries of each other.  As a rule, this is true for majority shareholders, but the law may be much more nuanced regarding the duties of minority shareholders. A close reading of the Supreme Judicial Court's decision in the leading case Donahue v Rodd Electrotype, as well as the reasoning behind the commonly understood rule, suggests a minority shareholder's obligation to the majority is limited and depends on their ability to control or influence the close corporation and not simply their status as shareholders.  Moll, D., Of Donahue and Fiduciary Duty:  Much Ado About . . . ?, 33 Western New England L. Rev. 471, 478 (2011); See also, Blaiklock, A., Fiduciary Duty Owed By Frozen-Out Minority, 30 Ind. L. Rev. 763, 774 (1997).

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