What Happens When Fiduciary Duties are Breached in Michigan?
Shareholders in a Michigan corporation can become involved in legal disputes with fellow stockholders or with the company’s management over various issues. One of the most common causes of shareholder disputes in Michigan is allegations of breaches of fiduciary duties by controlling shareholders or the corporation’s directors and officers. But what happens when a corporate fiduciary breaches the duties they owe to the company’s shareholders?
Understanding Fiduciary Duties
Specific individuals or entities may owe fiduciary duties in the corporate context, including controlling shareholders, directors, and officers. These parties owe duties to both the corporation and its shareholders. Fiduciary duties to corporations and shareholders can include:
- Duty of Care – The duty of care requires corporate controllers to act on behalf of the corporation only after making informed decisions. In many cases, this duty can require fiduciaries to obtain professional advice before making decisions.
- Duty of Loyalty – The duty of loyalty prohibits fiduciaries from operating under a conflict of interest, engaging in self-dealing, or usurping business opportunities from the business.
- Duty of Good Faith and Fair Dealing – This duty requires a fiduciary to act honestly and in the best interests of the corporation and its shareholders.
Common Breaches of Fiduciary Duties in Michigan Shareholder Disputes
Examples of ways that controlling shareholders, directors, or officers may breach fiduciary duties they owe to the corporation or its shareholders include:
- A majority shareholder freezes out minority shareholders from voting or attempts to pressure minority shareholders into selling their stakes.
- A fiduciary engages in self-dealing (entering transactions on behalf of the corporation that benefit the fiduciary, such as having the corporation buy services or goods from the fiduciary) or uses company assets for personal benefit.
- Fiduciaries withhold dividends or refuse to provide information about the business.
- A fiduciary misappropriates corporate opportunities, such as by swooping in to take over an acquisition that the corporation had previously identified as a target.
When corporate fiduciaries breach duties they owe to the corporation or its shareholders, the shareholders may have legal claims against those fiduciaries.
Legal Consequences of a Breach of Fiduciary Duty That Leads to a Shareholder Dispute
Shareholders may pursue various avenues to obtain relief from a breach of fiduciary duty by a majority shareholder, the board of directors, or the corporation’s officers. Legal options may include:
- Derivative actions, under which shareholders can pursue claims on behalf of the corporation when the company’s directors cannot independently and disinterestedly consider a demand to file a legal action to pursue such claims
- Direct lawsuits when shareholders have claims involving harm or loss they have sustained
In a breach of fiduciary duty claim, shareholders may seek various forms of relief, such as:
- Compensation for financial losses sustained by the corporation or its shareholders
- Injunctive relief that orders a majority shareholder, the corporation’s board, or officers to take specific actions or refrain from taking an action
- Unwinding of an improper transaction, such as an invalid election of directors
- Removal of directors or officers who have engaged in misconduct, such as misappropriating corporate assets
In rare cases involving fraud or willful or gross misconduct, a court may also award shareholders punitive damages to punish a fiduciary for their egregious conduct and deter others from engaging in similar conduct in the future.
What Can Shareholders Do?
When shareholders suspect that corporate fiduciaries have breached the duties they owe to the company and the shareholders, they can pursue legal action through a direct or derivative claim, depending on the nature of the harm caused by the breach. Shareholders should review the company’s articles of incorporation, bylaws, and shareholder agreements to understand their rights and the fiduciary duties that controlling shareholders, directors, or officers owe.
Contact a Corporate Attorney Today
When you find yourself in a breach of corporate fiduciary duty claim, you need experienced legal counsel to help you protect your rights and interests. Contact August Law, PLLC, today for a confidential consultation with a corporate law attorney to learn more about what happens when a corporate fiduciary breaches their duties to the company’s shareholders.