Under Michigan law, corporate controllers like directors, officers, and majority shareholders may owe various fiduciary duties, such as duties of loyalty and fair dealing. Breaching or violating a fiduciary duty can be financially costly and damaging to one’s reputation. As such, corporate managers and controllers can best protect themselves by learning what to do should they become the target of shareholders’ allegations of breaching fiduciary duties.
Understanding Fiduciary Duties Under Michigan Law
Directors, officers, and controlling shareholders of Michigan corporations may have fiduciary obligations to both the corporation and its shareholders. These fiduciary duties arise both from case law and the Michigan Business Corporation Act. Some of the most important types of fiduciary duties for corporate controllers include:
- Duty of care : Directors and officers must ensure they make informed, prudent decisions on behalf of the corporation, including by seeking professional advice when needed.
- Duty of loyalty : Corporate managers or majority shareholders must avoid engaging in self-dealing or acting under a conflict of interest.
- Duty of good faith and fair dealing : Directors and officers must act in the corporation’s best interest and treat shareholders fairly.
Examples of conduct that might lead to allegations of breaches of fiduciary duties include:
- Mismanaging corporate funds or causing waste of corporate assets
- Causing the company to transact with other entities in which a fiduciary also owns an interest
- Usurping corporate opportunities
- Failing to address illegal activity by the company due to inadequate oversight
Responding to Allegations of Breach
Should shareholders accuse you of breaching your fiduciary duties to the corporation, you can take the following steps to protect your rights:
- Treat the allegations seriously: Even if a shareholder’s accusations seem baseless, ignoring them could lead to costly, time-consuming litigation.
- Consult legal counsel: A corporate lawyer can help you understand your potential liability and prepare a tailored legal strategy based on the facts of the case.
- Conduct an internal investigation: An internal investigation can help you gather relevant evidence, including board minutes, corporate resolutions, communications, and statements from corporate personnel.
- Communicate carefully: Avoid making public statements about the allegations or taking retaliatory action against the accuser, as doing so may escalate the situation or harm your defense.
Legal Defenses and Resolution Strategies
Directors, officers, and majority shareholders may pursue various legal defenses against allegations of breaching fiduciary duties. Some of the most common defenses include:
- Business judgment rule : The law protects directors and officers from liability for actions they take in good faith on an informed basis, as courts may not substitute their judgment for that of a corporation’s board.
- Informed decision-making : Directors and officers may provide evidence showing that they consulted experts and professionals before making decisions or taking actions.
- Adequate disclosure : Corporate controllers may show that they disclosed conflicts of interest and had their actions ratified by independent directors.
There are several ways to resolve allegations of a breach of fiduciary duty, including:
- Negotiating a settlement with an aggrieved shareholder
- Submitting a dispute to mediation or arbitration to resolve the issue confidentially
- Taking the case to trial and making an argument before a judge and/or jury
Preventing Future Allegations
Corporations can reduce the risk of future breach of fiduciary duty claims by adhering to the following best practices:
- Implementing robust corporate governance policies that address conflicts of interest, prevent self-dealing, and protect minority shareholder rights
- Keeping accurate minutes of board meetings and documenting significant actions through corporate resolutions
- Conducting period audits and corporate compliance reviews
Contact a Corporate Law Attorney Today
Have your corporation’s shareholders alleged that you breached your fiduciary duties? If so, contact August Law, PLLC today to learn more about your legal options during a confidential consultation with a corporate lawyer.