Hello, this is Don, YOUR Harvard Lawyer.
You’re running a company that you founded, and you are the main reason for its success. Without you, there is not company, no success, and no profits.
Then a minority shareholder sues you for breach-of-loyalty? What kinda crap is that? I mean, it’s your company! Well, let’s briefly look at Michigan law.
Michigan cases for years have upheld minority shareholders’ rights to pursue breach-of-fiduciary duty claims against you. You can prevent these sorts of lawsuits by:
- including the right language in your company’s governing documents that limits some of your fiduciary duties. Your Operating Agreement, Shareholder’s Agreement, etc.
- making your personal transactions with your company objectively fair – how can they sue?
- making full disclosure to your other shareholders and getting their consent.
What are the most-common allegations that lead to disputes?
- That you took your company’s business opportunities for yourself – and they did not benefit the other shareholders. You can include an express waiver of this sort of claim in your company’s governing documents, such as its Operating Agreement. And it’s always best to make full disclosure to your fellow shareholders and get their consent.
- That you engaged in unfair transactions with your company. The company pays for your car, your cottage, your internet, etc. Again, make full disclosure and get the other shareholders’ consent of other shareholders. Or, structure the transaction to give the company terms more favorable than market rates.
- You pay yourself too much money. Avoid this by keeping yourself in 70-80% range to similarly-situated business people.
If you have a company, and want to figure out how to maximize your return without being sued, reach out 24/7 to Don Petersen. I not only practice business law, I teach business law. Send me an email at [email protected] or call me at (616) 389-4960.
