Legal Question in Business Law in Minnesota

Duty Of Officer & Shareholder

The president and shareholder of a closely held Minnesota Corporation was asked by their top customer to come work for them full-time. They indicated that they would not use the corporation for service anymore anyway. The president then voluntarily resigned, put his wife on as president, voluntarily quit and went to work for that customer. Did that shareholder violate his fiduciary duty even though that customer indicated they wanted him to work for them and said they would no longer use the corporationís services regardless of whether he worked for them or not? There was no vote from the shareholders or the board of directors approving this shareholder going to work for the corporationís top customer. This is a small corporation which consists of three shareholders. One shareholder (20% of the shares) had left the corporation under duress after having been accused of stealing part of the business from the corporation. The other two shareholders, who have equal shares, did not get along, and that is likely why the shareholder above did what he did.

Asked on 2/19/09, 7:11 am

2 Answers from Attorneys

David Anderson Anderson Business Law LLC

Re: Duty Of Officer & Shareholder

FIrst, the resigning President has no power to appoint a new President. Officers are elected by the Board of Directors, so that act was null and void.

If the President took action against the interest of the corporation prior to departing, then an action could be brought against him.

If terminated for misconduct, then other issues are raised.

You should consult with an experienced Attorney in Business and Corporate Law for a comprehensive overview of the legal issues.

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Answered on 2/19/09, 7:19 am

Daniel Reiff Reiff Law Office

Re: Duty Of Officer & Shareholder

This question poses a number of issues that cannot be resolved with the facts given. Did the former president usurp a corporate opportunity? The answer is not so easy, and a few additional facts could make the case go either way.

Separate but related to this is if there is some breach of the fiduciary duty. Again, there are issues that are touched on but not fully set out in the question. Some additional facts would be necessary.

Besides those issues, what does the former president's contract say? Is there a noncompete in the contract? Are there any notice provisions before resignation? Those are questions that should also be examined.

Aside from any potential litigation issues are issues related to corporate governance and documents. It looks like this corporation has some issues that could probably use some documents that may or may not already exist.

What do the articles of incorporation and bylaws say? If the barebonese articles that can be found anywhere were used, then they are probably no help. Having a good set of those documents would be helpful.

Is there a buy-sell agreement in place? That may help to resolve the conflicts between the shareholders.

NOTE: This communication is not intended to create an attorney-client relationship. No such relationship is created until a retainer agreement is signed by both parties.

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Answered on 2/19/09, 10:48 am

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