Does a Florida Minority Shareholder in a Closely Held Corporation Owe a Fiduciary Duty to Fellow Shareholders?

You and your friends form ABC Corp.  After a lot of hard work, effort, and time, ABC Corp. becomes very profitable and you and your friends make lots of money.  So much money that one of your friends decides that being a 25 percent shareholder in ABC Corp., is not enough.  Your friend decides to form another company that will compete against ABC Corp., while retaining his stock interest in ABC Corp.  What is your recourse?  Does your former friend, a minority shareholder, owe a fiduciary duty to ABC Corp., and the other shareholders?

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In Florida, the answer is not clear, and the direction the courts seem to have taken may surprise you.  While much has been written about the fiduciary duties owed by officers and directors in corporations and the duties of majority shareholders or controlling shareholders in both publicly held and closely held corporations, comparatively little has been said about the minority shareholder’s obligations to his fellow shareholders in a closely held corporation.

Instinctively, one would think that because of the unique attributes of a closely held corporation and the perceived common analogy of such corporations to partnerships that the answer would be in the affirmative and that such a duty should be recognized and imposed upon the minority shareholder in this type of corporation.  Indeed, this appears to be the direction that the Massachusetts courts have taken on this subject beginning with the decision of Donahue v. Rodd Electrotype Co. of New England, Inc., 367 Mass. 578, 328 N.E. 2d 505 (1975), and the line of cases that have followed in that state.  Instead, in Florida, it appears that cases analyzing whether minority shareholders owe a fiduciary duty to a corporation or to the other shareholders are sparse and they appear to leave more room for debate on the subject.

The focus of this article is to highlight for the reader the view that some of the Florida courts have adopted on this subject and to see how they compare with the decisions of the Massachusetts courts, specifically, the Donahue decision and its progeny.

Fiduciary Duty to the Corporation and to Minority Shareholders

Typically, the subject of fiduciary duty owed to a corporation or other shareholders arises in the context of the duty owed by the corporation and/or its majority or controlling shareholders to the minority shareholders of the corporation.  As a general rule, controlling shareholders or majority shareholders owe a fiduciary duty to the minority in all corporations.  This seems logical, since while on the one hand “[t]he majority has the right to control,” it “occupies a fiduciary relation toward the minority, as much so as the corporation itself or its officers and directors.”  Accordingly, majority control brings with it a fiduciary duty to deal fairly with the minority and to avoid managing the corporation in the majority’s sole interest or in a manner that oppresses the other shareholders or commits a fraud upon their rights.

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